How Much Equity Is Needed for a Reverse Mortgage? A Detailed Look

You can expect to need at least a 50% equity stake in your home to use a reverse mortgage. In general, the more equity you have in your property, the more cash you can access through a reverse mortgage product. Here’s what you need to know.

Table of Contents

1. Equity requirements by reverse mortgage type
2. How much of your equity can you borrow?
3. What if you don’t have enough home equity for a reverse mortgage?
4. FAQ

Equity requirements by reverse mortgage type

To qualify for a reverse mortgage, you typically need at least 50% equity in your home. This applies to all types of reverse mortgages, but the amount you can borrow and how you can use the funds depend on the type.

Reverse mortgage type	Min. equity required	Key details
Home equity conversion mortgage (HECM)	At least 50%	Federally insured; no restrictions on fund use.
Single-purpose reverse mortgage	At least 50% (varies)	Typically offered by government or nonprofits; funds must be used for a specific purpose.
Proprietary (private) reverse mortgage	At least 50%, sometimes more	Not government-backed; may allow higher loan amounts for high-value homes.

• HECMs follow FHA guidelines and require at least 50% equity to qualify.
• Single-purpose reverse mortgages also require substantial equity, though exact requirements vary by provider.
• Proprietary reverse mortgages may require more than 50% equity, especially for larger loan amounts.

Since a reverse mortgage first pays off your existing mortgage, the lower your current balance, the more equity you can access. If your equity is close to the minimum, waiting to build more equity could increase your borrowing power.

How much of your equity can you borrow?

Even though most reverse mortgages require at least 50% home equity to qualify, that doesn’t mean you can borrow the full amount.

For home equity conversion mortgages (HECMs), the FHA determines how much you can borrow based on:

• Your age (older borrowers can access a higher percentage of their equity).
• Current interest rates (lower rates allow for higher borrowing limits).
• Loan limits set by the FHA.

In most cases, you can borrow between 40% and 75% of your home equity, not the full amount. Closing costs and fees also reduce the final payout. Here are some examples to illustrate.

Example 1: John owns his home outright

At age 65, John could borrow up to 43% of his home’s equity if the reverse mortgage rate is 5%, based on the most recent data from the U.S. Department of Housing. Here’s how that could break down.

Detail	Value
Home value	$250,000
Equity in home	100%
Age	65
Reverse mortgage interest rate	5%
Loan-to-value (LTV) limit	43% of equity
Maximum loan amount	$107,500
Estimated closing costs (2%)	-$2,150
Final loan amount	$105,350

John could borrow up to $107,500 ($250,000 × 43%), minus closing costs.

• If closing costs are 2% of the loan, that’s $2,150 ($107,500 × 2%).
• His final loan amount would be $105,350 ($107,500 – $2,150).

Example 2: Sherri has 60% equity in her home

Sherri, also 65, has paid off 60% of her home, now valued at $250,000.

This means she has $150,000 worth of equity in her home ($250,000 x 60%) If she also takes out a HECM with a 5% interest rate, this means she could borrow up to 43% of her home’s equity. 

Detail	Value
Home value	$250,000
Equity in home	60% ($150,000)
Age	65
Reverse mortgage interest rate	5%
Loan-to-value (LTV) limit	43% of equity
Maximum loan amount	$64,500
Estimated closing costs (3%)	-$1,935
Final loan amount	$62,565

Sherri could borrow up to $64,500 ($150,000 × 43%), minus closing costs.

• If closing costs are 3% of the loan, that’s $1,935 ($64,500 × 3%).
• Her final loan amount would be $62,565 ($64,500 – $1,935).

Why equity matters

Even though both borrowers met the 50% equity requirement, John had access to significantly more cash because he had more total equity. The more equity you have, the more you can borrow, but your final loan amount depends on age, interest rates, and closing costs—not just how much of your home you own.

Consult with a financial professional or counselor who specializes in reverse mortgages before moving forward. Consider why you need a reverse mortgage and review the requirements. This decision should not be made in haste.

Read More

7 Most Important Reverse Mortgage Eligibility Requirements

What if you don’t have enough home equity for a reverse mortgage?

If you don’t meet the age requirements, have little equity, or otherwise don’t qualify for a reverse mortgage, you still have other ways to tap your home for cash. Below is a table showing how much home equity you typically need for five common alternatives, along with who each option might be best for.

Alternative	Equity Required
Home equity loan or HELOC	15% – 20%
Cash-out refinance	20% – 30%
Sell your property	Any equity level
Share your home’s equity	20% – 30%
Sell and lease back your home	Any equity level

Home equity loan or HELOC

If you have at least 15% to 20% equity in your home, a home equity loan or HELOC can be a flexible way to access cash. A home equity loan provides a lump sum with fixed payments, while a HELOC functions more like a credit line, allowing you to borrow as needed. This is best for homeowners who want to leverage their equity without altering their primary mortgage terms.

Cash-out refinance

A cash-out refinance replaces your existing mortgage with a new one that has a higher balance, allowing you to withdraw some of your equity as cash. Most lenders require at least 20% to 30% home equity to qualify. This option is best for borrowers who can secure a lower interest rate and want to consolidate debt or cover major expenses.

Read More

Cash-out refinance calculator

Sell your property

Selling your home allows you to cash out your existing equity, regardless of how much you have. If you have little home equity, you may not make much from the sale, but if your loan balance is low, you could walk away with substantial funds. This is best for homeowners who are looking to downsize or relocate to a more affordable home.

Share your home’s equity or appreciation

Home equity agreements allow you to trade a portion of your future home appreciation for an upfront cash payment. Typically, you need at least 20% to 30% equity to qualify. This option is ideal for homeowners who need liquidity but prefer not to take on new debt.

Sell and lease back your home

If you need cash but don’t want to move, a home sale-leaseback program allows you to sell your home and rent it back from the buyer. Some agreements may include a buyback option if you decide to repurchase the home later. This can work for homeowners who want to remain in their home while unlocking equity.

FAQ

How do I calculate my equity for a reverse mortgage?

To calculate your home equity, subtract your remaining mortgage balance from your home’s current market value. For example, if your home is worth $400,000 and you owe $150,000 on your mortgage, your equity is $250,000. Most reverse mortgage lenders require at least 50% equity, though requirements can vary.

How can I build equity if I don’t have enough for a reverse mortgage?

If you don’t yet have enough equity for a reverse mortgage, you can:

• Make a lump-sum payment toward your mortgage balance if possible.
• Pay down your existing mortgage faster to increase your ownership stake.
• Make home improvements that raise your property’s value.
• Wait for market appreciation if your local real estate values are rising.

How does a drop in home value affect my home equity after getting a reverse mortgage?

If your home value decreases after taking out a reverse mortgage, your available home equity will shrink. However, because reverse mortgages are non-recourse loans, neither you nor your heirs will owe more than the home’s market value at the time of repayment, even if the loan balance exceeds it.