Are you looking for other sources of cash to use during your senior years? If you’re a homeowner, you may be able to get a loan known as a reverse mortgage. In a nutshell, this lets you use home equity for anything you want, while also staying in your home.

This type of loan can provide seniors with financial advantages — but not everyone qualifies. There are also potential disadvantages associated with these loans. Before starting the process of applying for a reverse mortgage, it’s important to understand exactly what it is and its pros and cons. Let’s explore these loans in greater detail below.

What Is a Reverse Mortgage?

This is a kind of loan that some senior homeowners may be eligible for. It gives you a chance to tap into equity on your home if it’s paid off or if you have a small mortgage left on it. Rather than selling your home and using the proceeds for housing and other living expenses, reverse mortgages allow you to keep living there.

But not every older homeowner can get one of these loans. In fact, you’ll need to meet certain criteria in order to be eligible.

Who Qualifies for One?

That can vary, depending on the type of loan you get and other factors. For one of the most commonly used loans, called the Home Equity Conversion Mortgage (HECM), you’ll need to meet these eligibility requirements:

• Be at least 62 years old
• Have a minimum of 50% equity in your home
• Use your home as your primary residence
• Have zero late payments within the past 2 years for home-related expenses, such as property taxes and mortgage payments
• Attend a counseling session to learn more about the loan

Other kinds of reverse mortgages are available from private lenders. Note that age requirements and other eligibility criteria differ for each lender.

Overall, reverse mortgages come in a few different types, including HECMs from the Federal Housing Administration (FSA), single-purpose loans, and proprietary loans. Single-purpose loans from government agencies and nonprofits are designed to use for specific purposes, such as paying taxes. Proprietary loans from private lenders are mainly designed for homes with a higher value.

Why Consider Getting a Reverse Mortgage?

You might want to think about applying for this type of loan if you’re looking for extra income during your retirement years. Other reasons to consider it include:

• Having money to make home improvements to boost your home value
• Having money for improvements that help with aging in place, such as having walk-in showers installed in your bathrooms
• Eliminating monthly mortgage payments, giving you fewer bills to worry about each month
• Having money for other purposes, such as medical bills or financial assistance for family members

Just remember that a reverse mortgage only makes sense if you plan to stay in your home on a long-term basis. If you’re planning to sell within a few years, these loans aren’t suitable.

What Advantages Do They Offer?

Having a reverse mortgage can give you a steady source of money to use for living expenses and other costs, such as fixing up your home. You can also put this money in retirement savings accounts for later use.

Other pros of these loans include:

• No minimum income requirements or credit scores required for approval from many lenders
• Ability to keep living in your home without having to make mortgage payments every month

What Are Potential Drawbacks?

These kinds of loans are generally suitable for older homeowners looking for extra cash. But there are a few possible disadvantages to consider before getting one. These include the following:

• Must have a certain amount of equity in your home, making it harder for newer homeowners to qualify
• Tend to have higher interest rates compared to traditional mortgages
• Must pay property taxes and homeowners insurance each year to avoid defaulting on the loan
• Must pay other required costs to avoid default, such as HOA or condo fees
• Heirs are responsible for repaying the mortgage if you leave your home to them

Note also that the loan amount keeps going up over time rather than decreasing as a traditional mortgage does. Paying off the loan usually involves selling your home or leaving it to heirs to handle.

How Do You Get a Reverse Mortgage?

You can apply for a HECM through an FHA-approved lender. For single-purpose loans, check with local and state government agencies and nonprofits in your area. For proprietary loans, look for private lenders who offer this type of reverse mortgage.

If you need extra funds as a senior homeowner, these loans may be a good option for you. But take time to weigh the pros and cons before applying for a reverse mortgage.