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?
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”
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?
- Reverse mortgages are available in Puerto Rico, the District of Columbia and .all 50 states
- You must live in your home as a principal residence and at least one current owner must be aged 62 or over
- There should be sufficient equity in home to support a reverse mortgage.
- The house must be a single family home, a duplex, three unit or 4 unit residence.
Frequently 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?
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.
Is 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:
- The age of the youngest borrower (62 is the minimum requirement)
- The current interest rate for reverse mortgages
- The FHA loan limit of $625,500 or the appraised value which ever is less
What are the payment options for a reverse mortgage?
Five payment plans are available with reverse mortgages:
- Equal monthly payments provided at least one borrower lives and occupies the home as a principal residence.
- You can receive equal monthly payments for a fixed number of months
- You can choose a line of credit in an amount of your choosing until the line of credit is exhausted.
- Combination of regular monthly payments and a line of credit for as long as you remain in the home.
- Combination of line of credit in addition to monthly payments for a fixed number of months .
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?
- You can use the loan proceeds to pay for medical costs
- The reverse mortgage can be used to off your existing loan (and/or liens) on your home
- Use the loan for home repairs and improvement.
- Reduce or pay off your credit cards or other bills.
- Pay your real estate taxes and, or property insurance.
- Or, just take a vacation
. . . just to name a few
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
brochure.pdf that further explains the pros and cons of reverse
The Federal Trade Commission also offers information about reverse mortgages.
See FTC reverse mortgage brochure.pdf