Reverse mortgage requirements are much different from a conventional real estate loan. I have made a detailed video on the reverse mortgage income requirement, click here to watch. There is also a way in which the proceeds from a reverse mortgage can count as income as “qualifying income” to help obtain the loan. A conventional loan uses a debt- to income ratio where the new mortgage payment is combined with other credit report debts such as a minimum credit card payment and installment loan and auto payments. Property taxes and homeowner’s insurance in the form of a monthly payment and H.O.A. dues are also included. The lender will add all those together and that figure cannot represent more than 39% of your gross income.
One of the reverse mortgage requirements is not use a debt- to – income ratio calculation. Reverse mortgages have an optional monthly mortgage payment. You can pay any amount as often as you like. The tradeoff is any unpaid acrrued interest and charges associated with the loan, left unpaid at the end of each month, gets added to the balance of the loan and gets repaid once the loan gets refinanced or paid off. Other things required for a reverse mortgage are income, your credit score, debts, your monthly property tax, homeowner’s insurance and monthly H.O.A. (if applicable) then get added to a monthly property utility payment estimate. That figure gets subtracted from your gross income. As long as what is left over satisfies the residual income needed, which varies depending on where you live and how many people reside in your home, you satisfy the income required for a reverse mortgage. The reverse mortgage age requirement is 55 for one type of reverse mortgage, and 62 for another type. I have a video on my youtube channel that explains the differences between the two being that each has their own set of guidelines. The reverse mortgage equity requirement will vary. There isn’t just one or two reverse mortgage rules when it comes to determining the loan amount. Age of the youngest borrower, prevailing interest rates, equity in the home, and with some lenders a minimum credit score all go into an algorithm and from those combination of factors a loan amount is determined.
For example, I spoke with a 65- year- old lady who went to her bank and asked for a $200k HELOC. Her home was paid off, she had very little debt and the monthly income she needed to qualify for the HELOC was $8500 per month. On a FHA HECM reverse mortgage line of credit she only needed $1500 a month income to income qualify. A HUGE difference. Not having to count the mortgage payment when qualifying makes a huge difference in qualifying. If additional income is needed to qualify, if the credit line option is chosen and there is available credit to be used, we can convert the available credit into hypothetical income to add to the income equation as well. Depending on the type of reverse mortgage, some reverse mortgages allow funds from the loan to payoff or consolidate debts to help qualify, other reverse mortgages don’t allow it. Different guidelines for different types of reverse mortgages. To learn about different types of reverse mortgages I have a separate video for that you can watch.
One of the other reverse mortgage requirements, is the home being in lendable condition. Health and safety issues with the property typically must be paid prior to the loan funding, however there are some repairs that can be rolled into the loan. Finding a contractor who will allow themselves to be paid after the loan funds, or with proceeds of the loan is usually how to remedy the issue. If you aren’t sure what a health and safety issue is, feel free to give me a call or fill out the scenario button below and let me know your situation.The more advanced in age, the higher the loan you qualify for, however interest rates play a large role in determining loan amounts as well. Rising interest rates will wash away any gain a borrower will receive by waiting to get a larger loan due to being older. Timely payment of property taxes, homeowner’s insurance and any H.O.A. dues also is important. The lender will do a two year look back and get payment ratings on those obligations and if they were paid late at one point during the two- year span, that may play a role when qualifying. If the borrower had a life event that happened that caused them to be late, that may qualify as an exception. But if the borrower had the funds to make the payments and was late than the lender may require a large chunk of property taxes and/or homeowner’s insurance be rolled into the loan and when they come due, the lender pays them.
I hope that gives you an idea on some rules for reverse mortgage and to get a reverse mortgage and here’s the link to watch the video for more details. Again, feel free to tell me your scenario and I hope you found this article helpful.
Best,
KW