Is It Hard to Qualify for a Reverse Mortgage?
By Tyler Plack
Tyler Plack is the President of South River Mortgage. Tyler holds an active FHA Direct Endorsement (DE) underwriting certification and is the author of The Retirement Solution: Maximizing Your BenefitTyler is a seasoned entrepreneur and real estate investor renowned for his expertise in reverse mortgages and his commitment to addressing seniors' equity challenges. Tyler brings a unique perspective to his ventures, having built several successful companies throughout his career. His insights are frequently sought by industry publications, where he is recognized for his vast knowledge in the realm of reverse mortgages.
An avid investor in income-producing properties, Tyler is dedicated to helping seniors navigate their financial needs with compassion and expertise. When Tyler is not helping solve America's retirement crisis, he is a skilled pilot flying airplanes for fun.
Reverse mortgages can sound too good to be true — you get to stay in your home, you receive monthly payments, and you don’t have to pay toward the balance of the loan during your lifetime. For many people, reverse mortgages (HECM) are an integral part of their retirement planning. But how hard is it to qualify?
In many cases, qualifying for a reverse mortgage is a lot easier than you’d think. There are strict age and residency requirements, but when it comes to income and credit scores, lenders tend to be lenient. Here’s what it takes to qualify.
Qualifying for a HECM: The Basics
Most reverse mortgages are classified as Home Equity Conversion Mortgages (or HECMs for short). These mortgages are insured by the Federal Housing Administration (FHA), and the FHA has established these basic eligibility criteria:
You Must Be at Least 62
Reverse mortgages are specifically designed to help older homeowners stay in their homes as they age. For that reason, you can only qualify if you are 62 or older. There is no upper age limit for getting a reverse mortgage.
The Property Must Be Your Primary Residence
You can only get a reverse mortgage for your principal residence — not an investment property or vacation home. You also must keep the home as your primary residence throughout the life of the loan.
You Must Have Significant Equity or Own the Home Outright
When you take out a reverse mortgage, you are effectively converting some of your equity into cash. If you have very little equity in your home, you are unlikely to qualify. The smaller the remaining balance on your mortgage, the more equity you have.
You Must Not Be Delinquent on Federal Debt
If you have unpaid back taxes or are delinquent on another kind of federal debt, you likely will not qualify for a HECM.
You Must Be Able to Handle the Costs of Homeownership
Reverse mortgage contracts require you to handle routine maintenance of your home and to pay the various costs associated with owning a home. These include property taxes, homeowners’ insurance, and homeowners’ association fees (if applicable).
You Must Complete Counseling
The FHA approves certain people and organizations to counsel HECM applicants. Before you apply, you must attend loan counseling to ensure you fully understand the reverse mortgage process and any potential risks.
What Credit Score Requirements Do You Have to Meet?
There are no specific credit score requirements to qualify for a HECM. Because reverse mortgages are secured by your home, lenders are often very lenient when it comes to evaluating credit scores.
Although there are no specific credit score requirements, you must meet the following credit history requirements to be approved:
- All housing/installment debt payments have been made on time over the last 12 months
- You’ve had no more than two late housing/installment debt payments over the last 24 months
- You haven’t had any credit card payments more than 90 days late over the past 12 months
- You’ve had no more than three credit card payments made 60 days late
If you fall slightly short of the credit requirements, don’t automatically assume you can’t qualify for a reverse mortgage. The FHA itself asks lenders to think about how a HECM could help alleviate their financial difficulties when deciding whether to approve the loan or not.
If there were extenuating circumstances that have negatively impacted your credit history, your lender may be able to approve you anyway.
What About Income?
Income requirements for reverse mortgages tend to be less strict than those for other kinds of debt. However, if you aren’t familiar with the application process, it can be somewhat confusing to determine whether your income qualifies.
HECM lenders look at what’s called your “residual income” when evaluating your application. To get your residual income, you subtract your monthly expenses from your monthly income.
Your residual income must meet a specific threshold for your state and family size. If you aren’t sure whether you qualify or not, our team can review your situation with you and determine whether your residual income meets HECM requirements.
Want to Find Out Whether You Qualify?
The world of reverse mortgages can be confusing, but you don’t have to navigate it alone. The team at South River Mortgage is here to help you understand whether a HECM is right for you. If it is, we’ll help connect you with the right lender.
Get an instant quote here today (totally free) to get started. Then call 855-212-9114 to discuss your options with our licensed reverse mortgage experts. They will answer all your questions, no pressure or obligation.
