Can I get a reverse mortgage if I have bad credit?
One commonly held notion about?reverse mortgage loans?is that you need good credit to get one. While credit rating is considered in the underwriting process, it’s not the only—or even the most important factor. When a borrower applies for a reverse mortgage, the lender looks at their individual financial situation to determine the likelihood that they will be able to financially uphold the terms of their loan.
The following applies specifically to home equity conversion mortgages (HECMs), which are federally insured reverse mortgages. While proprietary reverse mortgages have similarities to HECMs, certain terms and requirements may differ.
What are the credit requirements for a HECM?? There is no target credit score required to get a HECM. In most circumstances, credit history, specifically payment patterns over the previous two years, holds more weight than the credit score.??
In general, borrowers whose credit is considered satisfactory have:?
“Major derogatory credit,” according to the Federal Housing Administration?(FHA), includes any payments on revolving accounts (i.e., credit cards) made more than 90 days after the due date or three or more payments made over 60 days after the due date.?
Other credit issues that will impact your application, even if they happened over two years ago, include:?
Judgments against you must be resolved or paid off before or at closing. If they are not, you must show that you have:?
As for collections and charge-off accounts, these don’t necessarily need to be paid off or placed on a payment plan. You will, however, need to provide an explanation letter for each collection or charge-off.??
Can I get a reverse mortgage if I have federal or tax debt??
Your lender will verify with a credit reporting agency whether you have a delinquent federal, non-tax debt.?If the debt is valid and delinquent, you’ll be ineligible for a reverse mortgage until you pay it off. The good news is that this type of debt may be considered a mandatory obligation, which means you can pay it off in full at closing using your reverse mortgage proceeds.?
If you owe federal taxes, you are ineligible for a reverse mortgage. You may become eligible if you pay off your debt at or before closing or if you have:?
Can I get a reverse mortgage if I’m behind on my mortgage??
Whether or not you are approved for a reverse mortgage will depend on the results of the financial assessment, which the lender must complete as part of any application. This assessment was created to ensure borrowers are willing and able to uphold the terms of their mortgage, i.e., pay taxes and property insurance and maintain the home. Applicants who are behind on their mortgage will need to document extenuating circumstances that explain the delinquency. Based on this information, the underwriter reviewing the financial assessment will consider these circumstances when making a determination.
If you are approved, you must pay off or resolve your outstanding mortgage debt to take out a HECM. The repayment of FHA-insured debt is considered a mandatory obligation of the HECM. However, you can use the proceeds at closing to pay it off.
Before you borrow
Determining whether a borrower satisfactorily meets the requirements of a HECM involves a detailed assessment of their individual situation. Before pursuing a reverse mortgage or any substantial financial decision, it’s wise to consult with a qualified finance professional who can help you understand and weigh your options.
Disclaimer: This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For tax advice, please consult a tax professional. For more information about whether a reverse mortgage fits into your retirement strategy, you should consult your financial advisor. These materials are not from HUD or FHA and were not approved by HUD or a government agency. Not all products and options are available in all states. . When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. The lender may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan). The balance of the loan grows over time and the lender charges interest on the balance. Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, HOA Fees (when applicable) and related taxes (which may be substantial). We do not establish an escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise, the loan becomes due and payable. The loan also becomes due and payable, and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid. This is not a commitment to lend or extend credit. Equal housing lender