Can I Get A Reverse Mortgage With Bad Credit?

One of the many advantages of reverse mortgages is that you do not need good credit to qualify. In fact, although there are requirements to obtain a reverse mortgage, having a good credit score is not necessarily a determining factor. The Federal Housing Administration (FHA) insures almost all reverse mortgages, which allows lenders to loan money to those who meet the age and home equity requirements, regardless of whether they have excellent credit.

Reverse Mortgages For Those With Bad Credit

Good people can have bad credit. Unforeseen circumstances such as a job loss, serious illness or an accident can reek havoc on a person’s credit score. However, even those who have had credit troubles in the past can apply and often qualify for a reverse mortgage. Unlike traditional mortgage loans that base eligibility solely on income and credit worthiness, reverse mortgages are available to those who have equity in a home and are 62-years of age or older.

Equity requirements. To qualify for a reverse mortgage, homeowners must have equity in their homes. This means that they will need either to own their home outright or have an existing mortgage balance that can be paid off with the proceeds of the reverse mortgage. In general, the total amount of the reverse mortgage loan will need to be less than 80% of the value of the home.

Taxes and insurance. Homeowners must continue to pay the taxes and insurance on their homes when they have a reverse mortgage. Not doing so could put the loan in default.

Residency. The home must be the primary residence of the loan applicant. If a person moves to another residence or is in a medical facility for 12-months or more, the homeowner is no longer eligible for the reverse mortgage and the loan must be paid in full.

Home requirements. Most reverse mortgages require that the property be a single-family home with a permanent foundation. Mobile homes or manufactured homes that are not on permanent foundations usually do not qualify unless a foundation is added. Some small multiple-unit buildings and condominium buildings may also qualify.

Financial Assessments

Although not as strict as a traditional mortgage income and credit requirements for loans, in 2014 it is expected that the FHA will implement financial assessments for those applying for reverse mortgage. This will determine whether they have the financial ability to continue paying taxes and insurance premiums on the home by assessing their cash flow, financial obligations, and in some cases, looking at their credit history.

In addition to taking a reverse mortgage out on an existing home, those who qualify can use a reverse mortgage to buy a new home. This can alleviate the stress of trying to obtain a traditional mortgage for those with lower incomes or less-than-perfect credit. The same age limits apply and usually the buyer must have at least 50% of the home value to put down on the home. However, once the loan is in place, there would not be a mortgage payment that needs to be paid monthly; the loan would be paid when the home is sold or after the homeowner’s death.

A reverse mortgage is one of the few home loans that can be granted with bad credit. It can be a realistic option for those needing extra money to begin retirement, pay medical expenses or those wanting to buy a home to live in through their retirement years.