Requirements to Qualify for a Reverse Mortgage

There are different kinds of mortgages. An important trend is the growth in the prominence of reverse mortgages in the past few years. A statistically significant rise of over 10,000 more reverse mortgage borrowers was seen in 2022, with a total of 64,489.

If you are interested in applying for a reverse mortgage, there are some requirements that you will need to fulfill in order to be qualified. Since the Federal Housing Administration (FHA) insures most reverse mortgages, numerous requirements concerning your finances and the condition of your house must be fulfilled.

Not being at least 62 years old or having enough equity in your home are two of the more apparent reasons why a person could not be eligible for a reverse mortgage. But, there are more factors to consider, some of which are less apparent at first sight.

If you’re unsure how to apply for a reverse mortgage and reap all the benefits, here are three essential requirements you must first fulfill.

You Need to Improve Your Credit Score 

Some individuals believe that a reverse mortgage will simply consider your home's equity. In reality, your equity will be taken into account alongside your total debt load. Your credit score also plays a significant role in determining your qualification.

If you have a history of late or missed payments on a credit card, mortgage, or other loan account, this may impair your eligibility for a reverse mortgage. If the borrower's credit isn't quite up to snuff, the reverse mortgage lender can recommend waiting a while before applying again.

Your existing mortgage debt will also play a part in determining your eligibility. Even if you still have some debt on your existing mortgage, a reverse mortgage loan would be able to pay it off. After you obtain the loan, you must also continue paying the property's taxes, insurance, and other costs on time. The lender's in-depth analysis of the borrower's finances will be important in making this determination.

Your Income Must Be Above the Demanded Minimum

Many individuals who seek out reverse mortgages are either already retired or are reaching the point where they will soon be leaving the workforce entirely. A candidate's ability to pay for housing and living expenses is taken into account, along with their Social Security and other income sources.

However, some borrowers are turned down for a reverse mortgage because they don't have enough monthly income to cover the estimated property charges. The vast majority of borrowers are given the option to still get a loan by having money set aside from that loan to pay for the property charges as they come due.

A life expectancy set aside (LESA) is a relatively new provision for reverse mortgage borrowers that can help certain applicants qualify even if they do not fulfill the credit or income standards.

In 2015, set-aside laws were adopted, enabling lenders to set away assets that borrowers may need to pay for property costs. Borrowers whose credit isn't perfect, but isn't so bad that they should be automatically denied a loan, will find support through the LESA.

The U.S. Department of Housing and Urban Development's (HUD) goal is to make the reverse mortgage program accessible to all eligible borrowers. However, if the borrowers' situations are not improved even after the closure of a reverse mortgage, HUD does not wish to prolong the ultimate loss of the house.

Your Property Must Conform to FHA Minimum Requirements

In addition to the applicant's financial standing, the residence itself must fulfill certain requirements for a reverse mortgage to be approved. Many would-be applicants might initially presume they meet all the necessary criteria, only to learn otherwise after submitting an application.

Making sure your house satisfies the FHA property standards is a significant part of the qualifying process. Most of the requirements have to do with making sure your house is secure and in good condition. Possible conditions for approval include the completion of necessary house repairs, such as replacing a broken roof or ensuring safe access to the residence.

There may also be potential fire concerns that need to be addressed. Manufactured houses and condos have their own set of regulations to meet in order to be approved by the FHA. Condominiums and prefabricated houses may be eligible for a reverse mortgage if they have received HUD approval, but not all properties meet these requirements. To find out whether your home is eligible, check with your lender.

Final Thoughts

Ineligibility for a reverse mortgage loan may result from a number of circumstances. Age, occupancy, credit, and equity are four of the most typical considerations. Some criteria, such as those mentioned above, may not be as clear. But with any kind of loan, it's important to do your research before making a final choice.