Table of Contents
Do You Need Good Credit for a Reverse Mortgage?
A reverse mortgage is a loan secured by the equity in your property. If you are 62 years old or older and have a significant amount of home equity.
However, Do You Need Good Credit for a Reverse Mortgage? You can borrow against the value of your property and receive funds in the form of a lump sum, set monthly payment, or line of credit.
Unlike a forward mortgage, which is used to purchase a home, you will not be required to make any payments to your lender.
Rather than that, the entire loan sum becomes due and payable upon the borrower’s death, permanent relocation, or sale of the home.
A reverse mortgage is one method of accessing the equity in your house that has accumulated during retirement.
Additionally, a cash-out refinance or a home equity loan are available. Each of these financial products requires a distinct level of eligibility and qualification.
In this article, we’ll discuss the requirements for obtaining a reverse mortgage.
Reverse mortgages are classified into three types. The most prevalent type of mortgage is the home equity conversion mortgage (HECM).
The HECM is practically synonymous with reverse mortgages offered by lenders on homes valued less than $970,800, and hence is the subject of this article.
If the value of your house is more, you may wish to consider a jumbo reverse mortgage, also known as a proprietary reverse mortgage.
What Is Required to Get a Reverse Mortgage?
To qualify for a reverse mortgage, you must meet a number of criteria. The most critical of them are those relating to your age and the amount of equity in your property.
Your Actual Age
Reverse mortgages are intended to enable senior homeowners who lack other retirement assets to access the equity in their property.
As a result, applicants must be at least 62 years old to qualify for a reverse mortgage.
Additionally, if you wish to include your spouse as a co-borrower (which you should if possible), they must be 62 years old.
Equity Requirements
Additionally, you must have a considerable amount of equity in your home, generally at least 50%.
You must reside in the property against which the reverse mortgage is being taken out, and it must be a single-family dwelling, condominium, townhouse, or mobile home erected on or after June 15, 1976.
Cooperative housing owners are not eligible for reverse mortgages under FHA guidelines since they do not technically own the real land on which they reside but rather own shares in a business.
In New York, where co-ops are prevalent, state law forbade reverse mortgages in co-ops until recently, permitting them only in single- to four-family dwellings and condos.
Governor Kathy Hochul signed legislation allowing New Yorkers aged 70 and older to obtain reverse mortgages on their co-op properties in December 2021.
The statute took effect in March 2022, and residents of New York State can now apply for one of two forms of reverse mortgages: federally insured HECMs or proprietary reverse mortgages.
Income and Credit Checks
Reverse mortgages do not require proof of income or credit. This is one of the distinctions between reverse mortgages and home equity loans or lines of credit (HELOC).
HELOCs enable homeowners to borrow against their home’s equity. Unlike reverse mortgages, home equity loans and home equity line of credit require borrowers to make payments and possess a solid credit score to qualify.
On the other hand, they may have fewer costs and may be a more affordable option than a reverse mortgage.
Counseling
The United States Department of Housing and Urban Development (HUD) requires that all prospective reverse mortgage borrowers attend a counseling session recognized by HUD.
This counseling session, which typically costs around $125, should last at least 90 minutes and discuss the advantages and disadvantages of obtaining a reverse mortgage in light of your specific financial and personal circumstances.
The counselor will discuss how a reverse mortgage may influence your Medicaid and Supplemental Security Income (SSI) eligibility, as well as the many ways in which you might receive the proceeds from your reverse mortgage.
Up-Front Costs
The process of establishing a reverse mortgage is not without cost. Borrowers must pay an origination fee and a one-time mortgage insurance payment at the time of application.
These charges are frequently covered by the loan itself, which means that you may not require any money to obtain a reverse mortgage.
It’s critical to understand, though, that reverse mortgages have substantial upfront expenses, regardless of whether you pay them out of your own wallet or from the equity in your home.
What Are Your Responsibilities?
While paying property taxes and homeowners insurance is not strictly required to obtain a reverse mortgage, you will be responsible for them once the mortgage is in place.
If you fall behind on these payments or if you stop living in the property for more than a year, even if it’s for medical reasons, you’ll be required to repay the loan, which is often accomplished by selling the house.
Note: There are other ways to access the equity in your property during retirement. A cash-out refinance or a home equity loan are two examples.
Both have stricter qualification standards than reverse mortgages, but both have the potential to be more cost-effective in the long run.
Before considering a reverse mortgage, you should determine whether you qualify for any of these other financial instruments.
What If You Do Not Meet the Requirements
If none of these loans are available to you, what other choices do you have for funding your retirement using home equity?
You may sell and downsize, or you might sell your home to your children or grandchildren to keep it in the family, possibly as a tenant if you wish to remain in the property.
What Makes You Ineligible for a Reverse Mortgage?
You must be at least 62 years old and live in your house as your principal residence for the duration of the reverse mortgage.
Noneligible are vacation houses or rental properties. To qualify for a reverse mortgage loan, you must own your property outright or have at least 50% equity in it.
How Much Equity Is Required for a Reverse Mortgage?
Around 50% equity. Borrowers must own their house outright or have considerable equity in order to qualify for a reverse mortgage.
Although the exact proportion varies by lender and reverse mortgage type, a good rule of thumb is to have at least 50% equity in your property.
Which of the Three Types of Reverse Mortgages Are Available?
There are three types of reverse mortgages: single-purpose reverse mortgages given by some state and local government agencies and nonprofit organizations; proprietary reverse mortgages, private loans; and federally insured reverse mortgages, also called home equity conversion mortgages (HECMs).
The Bottom Line
Reverse mortgages feature two basic eligibility requirements: applicants must be at least 62 years old and have a considerable amount of equity in their property.
While the exact percentage of equity required varies by lender, you will normally need at least 50%. Reverse mortgages do not require a credit score or proof of income.
The United States Department of Housing and Urban Development (HUD) requires all prospective reverse mortgage borrowers to participate in a HUD-approved counseling session and to pay an origination fee and an up-front mortgage insurance payment. Additionally, while it is not strictly required to obtain a reverse mortgage, you will be responsible for property taxes and homeowners insurance after the mortgage is obtained.
Finance World Direct > Archived > Mortgages
[wp-stealth-ads rows=”2″ mobile-rows=”2″]