How Does a Reverse Mortgage Work, Step by Step?
Step 1: Confirm basics
You must be 62+, live in the home as your primary residence, and have enough equity after paying off any existing mortgage.
Step 2: HUD-approved counseling
An independent counselor explains alternatives, costs, and obligations. You receive a counseling certificate required for application.
Step 3: Application and financial assessment
The lender verifies income and credit to ensure you can pay property taxes, insurance, and upkeep. If funds are tight, a Life Expectancy Set-Aside (LESA) may be required.
Step 4: Appraisal and underwriting
The home is appraised. FHA sets a principal limit based on age, interest rates, and home value (capped at the HECM limit).
Step 5: Closing
Existing mortgage is paid off first. Remaining proceeds go to you per your chosen payout option. Closing costs include origination, FHA mortgage insurance, and third-party fees.
Step 6: After closing
No monthly mortgage payments, but you must pay taxes, insurance, and maintenance. Missing these is the main cause of reverse mortgage default.
When this is NOT a good fit
- You cannot reliably pay property taxes, homeowners insurance, and maintenance
- You plan to move within a few years
- You need every dollar of home equity preserved for heirs
- Medicaid or SSI eligibility depends on keeping assets below program limits (consult an elder law attorney)
- You were pressured by a salesperson without time to research alternatives