Reverse mortgage & bad credit


Unanticipated situations like a serious illness, job loss, or an accident can cause bad credit. However, bad credit may not affect reverse mortgage approval, because a good credit score is not required for a reverse mortgage.

Is a reverse mortgage right for me?

According to the Department of Housing and Development, there were 493,815 active reverse mortgages in 2010. The reverse mortgage program is benefiting many senior citizens through these difficult times. Across the country, senior citizens are receiving additional income to help pay their bills, make necessary repairs to their home or just take that a long over due, once-in-a-lifetime vacation.

The FHA does not place any limitations on how the proceeds from a reverse mortgage are used. Home owners have the choice of transferring the entire amount of money into savings, or homeowners can simply take the money and spend it as they wish.

So what is the reverse mortgage loan program? Senior couple considering a reverse mortgage

Think of a reverse mortgage as a line of credit without a monthly loan payment. With a traditional line of credit (or home equity loan) the bank lends you money based on the value of your home. For example, let’s say the bank believes your home is worth $100,000 and the bank is willing to lend you $80,000. The bank gives you the option of taking the entire $80,000 in the form of a check or allowing you to draw a check each month of $1,000 for 80 months. In return, you agree to send the bank a “mortgage or loan payment” each month.

That's how it is with the traditional mortgage, credit line, or home equity loan, you borrow the money and pay the bank back each month . . . but with a reverse mortgage, you borrow the money and pay the bank back when the house is sold. Or, you can voluntarily repay the bank back for the money your borrowed. That’s what a reverse mortgage is. Borrowing against the equity in your home. What’s equity? Take the value of your home and subtract any existing mortgages.

Who is eligible for a reverse mortgage?

Approved ink stampFrequently Asked Questions About Reverse Mortgages

Can I be denied due to my credit?

No, the lender may review your credit report, but you cannot be denied because of bad credit or lack of credit.

Can I be denied because of income?

No.

Are there any costs with a reverse mortgage loan?

Processing fees, commonly called closing costs are necessary to process the loan. Closing costs vary from state to state. You should know that lenders are able to either "roll the closing costs" into the mortgage or are able to increase the interest rate and pay the closing costs on your behalf.

What types of homes are eligible?

The home must be a single family residence or a two, three or four unit home with one unit occupied by the borrower. Housing and Urban Development approved condos and manufactured homes that meet FHA requirements are also eligible.

What if I have a mortgage, line of credit or home equity loan?

These loans can be paid off with a reverse mortgage. This is one of the best reasons to take out a reverse mortgage. If you're struggling with an existing loan, the loan (or loans) may be satisfied with a reverse mortgage and help to reduce your current monthly payment or payments.

How much will our heirs receive from the sale of the home?

When the home is no longer used as a primary residence or sold, the amount of money that was disbursed from the reverse mortgage, including the finance charges must be repaid. The proceeds from the sale of the home less the reverse mortgage (including any costs relating to the sale of the home)  will be paid to the spouse or estate. The remaining equity, if any, is transferred to the heir(s). No debt is passed along to the heir(s) or the estate.

TwinsIs a home equity loan different from a reverse mortgage?

With a home equity line of credit or second mortgage, borrowers must have adequate income to qualify for the loan, and there is a monthly loan payment. A reverse mortgage is unlike a home equity loan, because it pays you - there are no monthly principal and interest payments. Borrowers are required to continue paying real estate taxes, utilities, homeowner's and flood insurance premiums (if applicable).

How much money can I get from my home?

The amount you may borrower with a reverse mortgage will depend on:

What are the payment options for a reverse mortgage?

Five payment plans are available with reverse mortgages:

Can I change my mind after I go to closing?

You are allowed to cancel the loan within three calendar days after settlement.

What can I use a reverse mortgage for?

Do I apply to the Federal Government for a reverse mortgage?

No, you apply for a reverse mortgage through approved banks or mortgage brokers. The Federal Government insures the banks and lenders.

Need more information about reverse mortgages?

The Consumer Financial Protection Bureau provides an easy to read brochure.pdf that further explains the pros and cons of reverse mortgages.

The Federal Trade Commission also offers information about reverse mortgages.
See FTC reverse mortgage brochure.pdf