Reverse Mortgage Basics

What Is a Reverse Mortgage?

How it works, who qualifies, and what it really costs

Quick Answer: What Is a Reverse Mortgage?

So, what is a reverse mortgage? It’s a loan for homeowners 62 and older that lets you tap part of your home equity, tax-free, with no monthly mortgage payment.

The most common type is the HECM, short for Home Equity Conversion Mortgage. It’s insured by the FHA (Federal Housing Administration).

You still pay property taxes and homeowners insurance and keep up the home. The loan is repaid when you sell, move out for good, or the last borrower passes away.

Myth: “The bank owns your house.” Fact: you hold the title, not the lender — the same way you do with any other mortgage. More myths, busted, in Aren’t Reverse Mortgages a Scam?

Somewhere between Bigfoot and “eating pop rocks with soda will make your stomach explode” lives the bad reputation of the reverse mortgage. Most horror stories you’ve heard are either total myths or misunderstood features of an old program.

This page breaks down how modern, federally insured reverse mortgages actually work today—in plain language—so you can ditch the rumors and decide for yourself.

See it explained

Watch: How It Works in 90 Seconds

How Does a Reverse Mortgage Work?

With a regular mortgage, you pay the bank every month, and your balance goes down.

A reverse mortgage flips that. There’s no monthly mortgage payment. Interest is added to the loan instead, so the balance goes up over time.

In short: instead of you paying the bank, the bank pays you.

You still own the home, and you’re still responsible for:

Property taxes
Homeowners insurance
HOA dues, if any
Basic upkeep
Living there as your primary residence

Keep up with those, and the loan stays in good standing.

Traditional Mortgage

You Pay the Bank

Monthly payments go from you to the lender. Your loan balance shrinks over time.

Reverse Mortgage

The Bank Pays You

Cash flows from the lender to you. Your loan balance grows; you make no required monthly payments.

Who Qualifies?

For a HECM, the standard requirements are:

At least one owner is 62 or older
It’s your primary residence
You have significant equity in the home
You’ve met with a HUD-approved counselor
You’ve passed a financial assessment, a check that you can keep paying taxes, insurance, and upkeep

Your credit score isn’t the deciding factor here. Your ability to keep up with the home is.

What is a LESA?

If the financial assessment determines you might struggle to pay your taxes and insurance, the lender may require a LESA (Life Expectancy Set-Aside). Part of your loan amount is set aside to make those payments for you. It’s similar to an escrow account for conventional mortgages. Some people get a LESA by choice, for peace of mind. The trade-off is that it reduces the money available to you.

Not Every Reverse Mortgage Is a HECM

The HECM is the most common type and the only one insured by the FHA. It comes with:

Required HUD counseling
Federal consumer protections
An annual HUD limit on how much home value they will allow
Non-recourse protection (you’ll never owe more than the home is worth)

Proprietary reverse mortgages on the other hand, are offered by individual lenders and aren’t insured by the FHA. Proprietary loans have their own guidelines, and that flexibility helps in more ways than one.

Proprietary loans can serve different homeowners with various needs:

One owns a high-value home, well above HUD’s cap
Another doesn’t qualify for a HECM due to high consumer debt. Some proprietaries let you pay off those debts with the loan proceeds in order to qualify
A homeowner might be under age 62. Some proprietary loans start at age 55
Or someone has a condo that isn’t FHA-approved

Proprietary loans typically have higher rates, but they can open up possibilities when a HECM isn’t the right fit.

Why This Matters in Marin & Sonoma Counties: Many North Bay homes are worth more than HUD will count toward a HECM. Jumbo proprietary programs offer loan amounts up to $4 million.

NEXA Lending is one of the largest brokers in the country, so I can compare options across multiple top-tier wholesale lenders—including Mutual of Omaha, Finance of America Reverse, and Longbridge—to match you with the exact HECM or proprietary program that fits your financial goals.

Feature	HECM	Proprietary / Jumbo
Minimum Age	62	As young as 55 in many states*
FHA-Insured	Yes	No
How Much You Can Borrow	Based on home value, up to HUD’s cap	Loan amounts up to $4 million
Mortgage Insurance	Required (funds FHA protections)	None — can mean lower upfront costs
Interest Rate	Typically lower	Typically slightly higher
Never Owe More Than the Home Is Worth	Yes	Yes, on most products
Condos	FHA-approved only	Many non-FHA-approved condos accepted (varies by lender)
Pay Off Debts to Qualify	No	Yes, with some programs

*Minimum ages vary by lender and state — some states require 60 or 62 even for proprietary programs.

How Can You Receive the Money?

A Lump Sum

Cash at closing, to use any way you want.

Often used to pay off debts, cover medical expenses, add safety features to the home, or take that long-awaited trip.

A Line of Credit

Draw what you need, when you need it. The unused amount grows over time.

Often used as a safety net for repairs, healthcare, or a down market.

Monthly Payments

A set amount each month, for a fixed number of years or for as long as you live in the home.

Often used to fill a gap in monthly income.

A Combination

Mix and match.

For example, take some cash now and keep a line of credit for later.

Want a fixed interest rate? That comes with the lump sum. The other options use an adjustable rate.

A different way to buy

What is a Reverse for Purchase? Buy a New Home With Zero Mortgage Payments

A Reverse for Purchase (R4P), also called a HECM for Purchase (H4P), lets buyers 62+ purchase a new primary home with no monthly mortgage payments. Mutual of Omaha markets this same FHA-insured loan as the Lifestyle Home Loan.

Is your current home still working for you? Want to move but feel stuck? Here’s how an R4P can help:

You make a down payment, usually from selling your home or your savings.
The reverse mortgage covers the rest.
The seller is paid in full at closing.
You’ll have no monthly mortgage payments for the life of the loan.

You’ll still pay property taxes and insurance and maintain the home, just as with any mortgage. It’s FHA-insured and non-recourse, so you’ll never owe more than the home is worth.

What Can it Do for You?

Downsize or relocate — move closer to grandchildren, into a single-story home, or somewhere that better fits this stage of life.
Increase your purchasing power — since you’re not paying 100% cash, more of your funds can stay liquid, or go toward a home you couldn’t otherwise afford outright.
Improve monthly cash flow — no required monthly mortgage payment, as long as you live in the home.
Preserve your future savings — keep more of your retirement funds invested and working for you, instead of tied up in a home purchase.

What Do You Need to Qualify?

Age: At least one borrower must be 62 or older.
Down payment: Typically 50–60% of the purchase price, depending on your age and current interest rates.
Primary residence: You must move in within 60 days of closing and live there as your main home.
Eligible property types: Single-family homes, FHA-approved condos, townhomes/PUDs, owner-occupied 2–4 unit properties, and manufactured homes meeting HUD guidelines.
Ongoing obligations: Property taxes, homeowners insurance, HOA dues (if any), and home maintenance—same as with any mortgage.

An R4P is ideal for homeowners who want to downsize, right-size, or relocate—without taking on new monthly debt to do it.

What Does It Cost?

A HECM has four main costs:

Upfront mortgage insurance: An initial mortgage insurance premium (currently 2% of the home’s value or the FHA lending limit, whichever is less)
Annual mortgage insurance: Currently 0.5% of the outstanding balance per year
Origination fee: The lender’s fee, capped by HUD
Closing costs: Appraisal, title, and other standard fees

Example: On a $600,000 home, upfront mortgage insurance is about $12,000. It can usually be paid from the loan instead of out of your pocket.

Proprietary loans don’t require FHA mortgage insurance. That usually means lower upfront costs but a slightly higher interest rate. Closing costs are comparable to those on a conventional purchase mortgage loan, and can usually be included in the loan.

See your own numbers

What Could You Qualify For?

Try the calculator below for a free, no-obligation estimate based on your home’s value and age. It only takes a couple of minutes.

This is an estimate only, not a loan offer or commitment. I’m happy to walk through your actual numbers whenever you’re ready.

When Does the Loan Have to Be Paid Back?

The loan comes due when the last borrower:

Sells the home or transfers the title
Moves out permanently
Passes away

What Are Your Heir’s Options?

Sell the home and keep what’s left after the loan is repaid
Keep the home by paying off the loan or refinancing. With a HECM, they pay the loan balance or 95% of the home’s appraised value, whichever is less
Hand the home to the lender if there’s no equity left, with no further debt

They’ll typically have about six months, with possible extensions.

The debt can never be bigger than the house. If the balance ends up higher than the home’s value, your heirs don’t owe the difference.

Is a Reverse Mortgage Right for You?

That depends entirely on your situation. For some homeowners, it’s a great fit. For others, a HECM for Purchase, a HELOC, or another approach makes more sense.

I want you to decide with all the facts, even if that means choosing something other than a reverse mortgage.

Compare your options: Alternatives to a Reverse Mortgage
Clear up the myths: Aren’t Reverse Mortgages a Scam?

One more thing: qualifying can get harder over time, not easier. Losing a spouse’s income or taking on debt can narrow your options. See Why waiting can cost you options you don’t get back.

Common questions

FAQs

Do I still own my home with a reverse mortgage?

Yes, you keep the title and remain the sole owner of your home. You maintain ownership as long as you live in the home as your primary residence and fulfill standard requirements: paying property taxes, maintaining homeowners insurance, and keeping up with basic maintenance.

Can I lose my home with a reverse mortgage?

Yes, but only if you fail to meet standard homeownership obligations. Just like a traditional mortgage, you must stay current on property taxes, homeowners insurance, and required property maintenance to keep the loan in good standing.

Will my heirs inherit debt?

No, HECMs and most proprietary reverse mortgages are non-recourse loans. Your heirs will never owe more than the home’s fair market value at the time of sale. If the loan balance exceeds the home’s value, FHA insurance covers the difference.

Is reverse mortgage money taxable?

No, reverse mortgage proceeds are classified as loan advances rather than earned income. Because funds drawn are not considered taxable income, they generally do not impact your federal or California state income taxes (always consult a qualified tax advisor for your specific situation).

Will a reverse mortgage affect my Social Security or Medicare?

No — since the money is loan proceeds, not income, it doesn’t affect Social Security or Medicare eligibility. There’s one important exception: need-based programs like Medicaid and Supplemental Security Income (SSI) do look at your assets. Funds you draw and leave sitting in a bank account past the month you receive them could count against those specific program limits. If you rely on Medicaid or SSI, it’s worth talking to a benefits counselor or elder law attorney before deciding how to receive your funds.

What’s the difference between a reverse mortgage and a HELOC?

A traditional HELOC requires mandatory monthly payments and can be frozen or canceled by the bank, whereas a HECM requires no monthly payments and cannot be canceled.

Additionally, the unused portion of a HECM line of credit grows independent of home value fluctuations. Unlike a HELOC—which a bank can reduce if property values drop—a HECM credit line increases your borrowing capacity over time.

Do I need a certain credit score or income to qualify?

There is no minimum credit score required to qualify for a HECM. However, borrowers undergo a financial assessment to verify sufficient income or cash reserves to comfortably cover ongoing property taxes, homeowners insurance, and upkeep.

How much money can I get from a reverse mortgage?

The amount you can access depends on the youngest borrower’s age, current interest rates, and your home’s appraised value (up to the federal HECM limit or jumbo program guidelines). Generally, older borrowers with higher-value homes can access a larger percentage of their equity.

Do high-value Marin or Sonoma homes qualify for larger reverse mortgage limits?

Yes. Marin and Sonoma County home values regularly exceed the maximum property value HUD will count toward a standard HECM, which is exactly why proprietary (jumbo) reverse mortgages exist. These loans, offered through national lenders like Mutual of Omaha, Finance of America Reverse, and Longbridge, offer loan amounts up to $4 million—well beyond what a standard HECM allows.

Can I use a reverse mortgage to buy a new home?

Yes, through a program called a HECM for Purchase (or Reverse for Purchase). Mutual of Omaha markets this same FHA-insured program as the Lifestyle Home Loan. This allows you to buy a new primary residence with roughly 50% to 60% down out of pocket, financing the rest with a reverse mortgage to eliminate monthly mortgage payments on the new home.

What is a Lifestyle Home Loan?

It’s Mutual of Omaha’s name for a HECM for Purchase. Same FHA-insured program, different label.

What if I need to move into assisted living later?

If you are absent from the home for longer than 12 consecutive months, the loan becomes due and payable. In this situation, most homeowners choose to sell the home, pay off the loan balance, and retain all remaining equity to fund their care.

Key takeaways