Can You Get a Reverse Mortgage with Bad Credit?
One of the many benefits of a reverse mortgage is that you do not have to have great credit in order to qualify. In fact, you may even be able to qualify for a reverse mortgage with moderate to poor credit.
While there are certain requirements reverse borrowers must meet, their credit scores are not necessarily a determining factor in the approval process. This is because most reverse mortgages are insured by the Federal Housing Administration (FHA), a government agency which allows lenders to approve borrowers for reverse mortgages as long as they meet the age and home equity requirements. Don’t get us wrong – an excellent credit score is always a good thing to have; but when it comes to getting a reverse mortgage, it is not a necessity.
Reverse Mortgages for Borrowers With Bad Credit
Bad credit can happen to good people. Unforeseen events and unexpected expenses like a serious illness, loss of job or major accident can cause people to rely on credit, making it difficult to get out of debt – especially if the person is on a fixed income. Fortunately, reverse mortgages are one of the few home financing options that do not necessarily offer better terms if you have a higher credit score. Unlike traditional mortgages that base their eligibility on income and creditworthiness, reverse mortgage loans may be available to any borrower who meets the home equity and age requirements. Please note, however, that this does not mean anyone who is 62 or older with home equity is a good candidate for a reverse mortgage. There are other things to consider before determining if a reverse mortgage is right for you. Take a look at some of those considerations below and then reach out to one of our reverse mortgage experts to see if a reverse mortgage makes sense for your situation.
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More on Reverse Mortgages with Less than Perfect Credit
Equity & Age Requirements
In order to qualify for a reverse mortgage, homeowners must be 62 years of age or older and have substantial equity in their homes. This means they need to either own their home outright (i.e., have their purchase mortgage paid off), or have an existing mortgage balance that can be paid off with the proceeds of a reverse mortgage. Typically, the total amount of the reverse mortgage loan should be less than 80% of the value of the home.
Taxes & Insurance
Although reverse mortgage borrowers no longer need to make monthly mortgage payments (the lender pays them, instead), they will still be required to pay their homeowners insurance premiums and property taxes. Not doing so is grounds for the loan to be called due, and if the borrower is unable to repay the reverse mortgage loan, then they could go into default and possibly face foreclosure. If you feel like you may have difficulty paying the taxes and insurance on your home, a reverse mortgage may not be the best option.
Reverse mortgages can only be taken out on the borrower’s primary residence. Once the borrower no longer uses the home as their primary residence, the loan can be called due and must be paid in full. If the borrower passes away, the reverse mortgage balance can be paid off through the sale of the home, by the borrower’s estate/heirs, or will be taken as a loss by the FHA in the event that the home cannot be sold for an amount large enough to satisfy the reverse mortgage debt. The borrower’s heirs are not held liable for the reverse mortgage debt; however, if the borrower’s heir(s) wish to own the home, they must “buy” it from the lender by paying off the debt. If you think your heirs will want to own your home after you’re gone, a reverse mortgage may not be the best option. If you do not have any heirs, or if they have no desire to own the home after you’re gone, then a reverse mortgage could be a great option.
Income Not Necessarily a Huge Factor
In 2014, the FHA implemented financial assessments for those applying for reverse mortgages. Although they are not as strict as income guidelines for traditional mortgages, these assessments make applying for a reverse mortgage safer for seniors who are on a fixed income. These assessments were put into place to help determine whether or not a borrower has the financial ability to continue paying their taxes and insurance (see Taxes & Insurance section above) by analyzing their cash flow and other debts.
Learn more about how people are using home equity conversion mortgages for purchasing homes:
Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.