One of the top benefits of a reverse mortgage is that monthly payments are optional2 – so having a high credit score is not required. While there is no minimum credit score to be eligible for the loan, you will be subject to a credit check as part of the Financial Assessment.
The 60% Utilization Rule
Home equity conversion mortgage HECM borrowers may only take the greater of 60% of their total available equity or the total amount of their mandatory obligations plus 10% in the first payout.
Be 62 years of age or older. Own the property outright or paid-down a considerable amount. Occupy the property as your principal residence. Not be delinquent on any federal debt.
The lender may also check your credit report to review your payment history and delinquent debts. If the lender determines that you have insufficient income to afford the ongoing costs, or you have defaulted on debts before, your reverse mortgage application could be denied.
Who is not a good candidate for a reverse mortgage? A reverse mortgage is a questionable proposition if you have sufficient income to pay your bills or are willing to sell your home to tap into the equity. If that's the case, it may make more sense to just sell it and downsize your home.
Although you don't need income to qualify for a reverse mortgage, you do need to show the lender that you have the means to afford the ongoing costs of homeownership, including property taxes and homeowners insurance premiums. You'll also need to keep your home in good repair.
If your reverse mortgage loan is in default and you've received a notice that the loan is “due and payable,” you may sell your home for 95 percent of its appraised value.
A reverse mortgage increases your debt and can use up your equity. While the amount is based on your equity, you're still borrowing the money and paying the lender a fee and interest. Your debt keeps going up (and your equity keeps going down) because interest is added to your balance every month.
Reverse mortgages require that applicants be at least 62 years old and own a significant amount of equity in their home. Applicants typically need 50% equity to qualify for a reverse mortgage. There are no credit score or income requirements for reverse mortgages.
How Do Reverse Mortgages Work? Most require no repayment for as long as you live in your home. They are repaid in full when the last living borrower dies, sells the home, or permanently moves away. Because you make no monthly payments, the amount you owe grows larger over time.
Modified Term Reverse Mortgage Payment Plan
You can avoid running out of money with this plan if you use your line of credit carefully. If you exhaust the line of credit early on, you may have no equity left to draw on at the end of the term.
With a reverse mortgage for purchase, people can take out a reverse mortgage and buy a new home in the same transaction. Usually, homebuyers have a large cash down payment of about 40-70% of the new home's purchase price.
Only certain types of properties are eligible for a reverse mortgage. Mobile homes, co-ops, and multifamily homes with more than four units are not eligible. The following types of homes can be eligible: Single-family homes.
The amount of money you can get from a reverse mortgage usually ranges from 40% to 60% of your home's appraised value. The older you are, the more you can receive because loan amounts are based on your age and current interest rates. Several factors determine the loan amount: The age of the youngest borrower.
Alternatives to a reverse mortgage include home equity loan, home equity lines of credit, and cash-out refinances. These financial products can help you tap the equity in your home to use as cash for other purposes.
Suze Orman's opinion on reverse mortgages
She has spoken out against these loans on numerous occasions, warning that they can be a risky financial decision for many older Americans. One of Suze's main concerns with reverse mortgages is that they can be incredibly expensive.
You're still responsible for paying property taxes and insurance, and if you default on your property taxes, you could lose your home to tax foreclosure. A reverse mortgage lender can foreclose on the home if you're not living in it for more than 12 consecutive months due to health care issues.
It is worth mentioning that all HECMs are subject to the 60% utilization rule. This limits the amount any reverse mortgage borrower can take in the first year to the higher of 60% of the principal limit or mandatory obligations like an existing mortgage plus 10% of the loan amount.
When you have a reverse mortgage, you retain title to the property and are free to sell it anytime you see fit. However, the reverse mortgage loan becomes due if you decide to sell, so be sure your home's current value (or your savings account balance) is high enough to pay off the loan and cover the closing costs.
You need to have a certain amount of equity in your home before you can take out a reverse mortgage. The amount you will need will vary by lender, but typically, you must have at least 50% equity in your home, and sometimes more.
A reverse mortgage financial assessment reviews a potential borrower's financial situation, including credit history, employment history, debts, and income, to make sure that the borrower can afford to pay the ongoing costs of maintaining their property while receiving reverse mortgage payments.
While poor credit history can limit your options, if you're a senior homeowner, you've got a great option at your disposal — a reverse mortgage home equity conversion loan (HECM). The good news is that the HECM reverse mortgage is NOT based on any certain credit scores. In fact, having NO credit score is okay.