Can You Get A Reverse Mortgage If You Still Have A Mortgage?

Image representing confusion about using a reverse mortgage when you already have a standard mortgage.

The latest data from the Federal Reserve shows that 42% of homeowners do not have a mortgage. If you're in the majority of the population and still have an existing mortgage, can you still qualify for a reverse mortgage?

Does it qualify? It depends. A key component of reverse mortgage qualifications is that there's enough home equity to support the loan. If you have an existing mortgage, your lender needs to be able to pay it off and take the first lien position on your home.

This article covers how reverse mortgages work, how to qualify, and why using a reverse mortgage to pay off an existing loan can be a beneficial option to supplement your retirement income.

Understanding reverse mortgages

Reverse mortgages are a way to withdraw equity from your home, receive funds now, and then push out paying the loan balance until you sell or pass away. For most reverse mortgage loans, you can use the proceeds for anything you'd like, such as daily living expenses, medical bills, or home improvements.

With this type of loan, you don't make monthly mortgage payments, and instead, the loan balance gets paid at the end in "reverse." Every fee and cost for the loan adds to the total amount. Then, when it's time to pay off, your reverse mortgage lender determines the overall loan outstanding balance by summing up:

The principal amount
Loan interest fees
Closing and origination costs
Any other processing fees

Besides paying off at the end of the loan, another difference between a reverse mortgage and a traditional mortgage is that it's a non-recourse loan. If your heirs go to sell your property and the value isn't enough to pay off the loan, mortgage insurance covers the gap.

Types of reverse mortgage loans

There are three main types of these loans:

Home equity conversion mortgage (HECM): This is the most common reverse mortgage. It's part of a Federal Housing Administration (FHA) program that provides protections for the reverse mortgage borrower and insurance for the lender.
Proprietary reverse mortgage: People also call these loans jumbo reverse mortgages because they provide larger loan proceeds than under an HECM reverse mortgage. They don't fall under the FHA's program which means they have a few differences around rules and logistics.
Single-purpose reverse mortgage: State, local, and community organizations offer the final type of reverse mortgage, which you can use only for a single purpose. Whatever your need is, you'll define this up-front before getting the loan.

Getting a reverse mortgage with an existing mortgage

If you have an existing mortgage balance, getting approval for a reverse mortgage comes down to home equity. Your lender reviews the value of your home and your current mortgage loan balance to calculate if there's enough room for a new loan. Generally, lenders seek 40%-60% loan-to-value for your home to qualify.

If it does, the lender pays off your existing mortgage with the new loan, and you receive the remaining as reverse mortgage proceeds. As an example, say your home is worth $200,000, and your current mortgage is $50,000; here's how it works:

Home value: $200,000
Current mortgage: $50,000
Loan-to-value: 60%
New loan amount: $120,000
(60% of $200,000)
Proceeds to you: $70,000
($120,000 loan - $50,000 to pay off the outstanding mortgage debt)

The reverse mortgage process

The overall process for getting a reverse mortgage loan includes:

Qualify for a reverse mortgage

To qualify for a reverse mortgage loan, at least one borrower must be 62 or older, and you must live in the home as your primary residence. Properties that qualify include:

Single-family homes
Condominiums
Manufactured homes
Multifamily homes of up to four units

Reverse mortgages also require you to pay property taxes and homeowner's insurance while you live in the home, so the lender will confirm that you have enough income to cover these costs. You also cannot have any federal debt like outstanding income taxes.

Apply for the loan

Before you can apply for the loan, you must participate in a counseling session with an FHA-approved counselor. You'll need to do this for all HECM reverse mortgages and proprietary reverse mortgages. During the session, the counselor will discuss:

Your plans for the reverse mortgage proceeds.
How long you plan to stay in the home.
If you've considered other options like a home equity loan or traditional mortgage refinance.

Once you complete the counseling session, you'll receive a certificate to include in your application. The lender also confirms your age, property details, and income as part of the application process.

Home appraisal

The reverse mortgage lender orders an appraisal on your property to determine market value and the overall amount of equity. Besides situations where you have an outstanding traditional mortgage, you also might have FHA-required home repairs. In these scenarios, the lender deducts all of these costs from the total reverse mortgage funds you receive.

Receive the proceeds

Once you have approval for a new reverse mortgage, you have a few different options on how you'll receive payouts. These include:

Lump sum payout: This is an all-up-front payout of your proceeds.
Monthly payments: You can decide to receive your payout in monthly payments either for a fixed term, like 5-10 years or for the entire time you remain in the home.
Home equity line of credit: This approach works like a traditional line of credit where you can draw against the loan proceeds as needed and at any time.
Combination: You can also choose a combination of monthly payments plus a home equity line of credit.

Payoff the loan

Borrowers pay off home equity conversion mortgages when they sell the home or pass away. The options here include:

Pay off the reverse mortgage: You or your heirs can pay off the reverse mortgage at any time.
Sell the home: Your heirs can sell the property and use the proceeds to pay off the loan.
Deed in lieu of foreclosure: If your heirs don't want to go through the process of getting the property ready for sale, they can also sign over the deed to the reverse mortgage lender.

Total loan amount

Besides home equity, other factors that determine the total amount of your reverse mortgage loan include the age of the youngest borrower, the interest rates, and the type of loan payout you choose. Each of these details impacts the overall loan amount and what is available to you after the lender pays off your existing mortgage.

Our reverse mortgage loan calculator can give you an idea of the potential proceeds you might receive.

Benefits of transitioning to a reverse mortgage

If you have an existing mortgage, here are some of the benefits of paying it off and switching to a reverse mortgage:

No monthly payments: Paying off your existing mortgage with a reverse mortgage means you'll no longer have to make monthly payments, which frees up your available cash in retirement. It also reduces the risk of foreclosure due to non-payment.
Increase income: The loan proceeds also increase your retirement income and can improve your cash flow.
Age in place: You can use your reverse mortgage loan to make home modifications or pay for caregiving costs so that you can remain in your home longer as you age.

Reverse mortgages with existing mortgages final thoughts

Getting a reverse mortgage when you have an existing mortgaged property is still possible as long as you have enough equity. Having access to additional funds that aren't available with a traditional mortgage can give you financial security and peace of mind in retirement. For many seniors, these loans provide support to maintain independence and cover living expenses.

Can you get a reverse mortgage if you still have a mortgage? FAQs

Can you get a reverse mortgage if your house is not paid off?

Yes, you may still be able to get a reverse mortgage even if your house is not paid off. As long as you have enough equity for the reverse mortgage loan to pay off your existing mortgage, you can get a loan.

Can you get a reverse mortgage if you have debt?

Yes, it's possible to still get a reverse mortgage even if you have debt. If your debt is an existing mortgage, there needs to be enough equity for the reverse mortgage lender to pay off that loan. If you have other debt like credit cards or car payments, you just need enough income to pay those and the ongoing property taxes and homeowner's insurance.

What disqualifies you from getting a reverse mortgage?

You can't get a reverse mortgage loan if you are under the age of 62, don't have enough home equity conversion mortgage, and don't have the income to pay property taxes and homeowner's insurance.