Reverse Mortgage Credit Score Requirements

Reverse Mortgage Credit Score Requirements

Unlike other traditional loan and financing arrangements, the FHA insured reverse mortgage does not have a minimum FICO score requirement. However, the FHA and most proprietary reverse mortgages still undergo a financial assessment of the borrower to ensure this is the right loan for them. Unlike the FHA insured reverse mortgage, most proprietary reverse mortgage have a minimum FICO score. 

Since there’s no minimum credit score requirement for taking out these home equity loans, lenders are more concerned with whether the borrower can meet ongoing property-related expenses that are required to keep the home in good condition. 

Borrowers with good credit history and no late payments for homeowner’s insurance, taxes, and mortgage payments in the last 24 months will typically have an easier journey through the financial assessment. Borrowers who have experienced financial hardships are still eligible for a reverse mortgage, but may undergo some loan structuring requirements. If necessary, lenders may take into account the borrower’s life expectancy when determining the structuring component of the loan. 

Before we look at the credit score requirements for a reverse mortgage, let’s dive deeper into the different types of reverse mortgage loans. 

What Is a Reverse Mortgage Loan?

A reverse mortgage is financing that allows a property owner to borrow against their homeowner’s equity. These loans can be government-insured or private and are available to property owners living in their own homes aged 62 years and above.** 

Reverse mortgage borrowers can opt to take out their loan proceeds from a reverse mortgage as a lump sum payment, line of credit, fixed monthly payment, or a combination of all three. 

In modified tenure mortgages, however, borrowers can receive their money as both a line of credit and fixed monthly payment. This type of arrangement gives them smaller payments, but allows for intermittent use of the remaining line of credit, compared to straight tenure mortgages. 

Loan proceeds can be used to meet a wide variety of needs and expenses, including: 

• Increased liquidity and monthly cash flow 
• Funding home improvements or repairs 
• Purchasing gifts 
• Improving your lifestyle 
• Paying off an existing mortgage 
• Paying homeowners insurance premiums 
• Paying medical bills or in-home care 
• Paying property taxes 
• Paying utility and credit card bills 
• Paying for travel 

Borrowers are not required to make regular monthly payments like a traditional mortgage,* however, they may elect to make any type of repayment towards a reverse mortgage that fits their needs. The total or remaining loan balance is due when the last borrower leaves the home. 

Borrowers can take out reverse mortgages on single-family properties, 2-4 unit multifamily and HUD-approved condominiums; with the stipulation that the property must be the borrower’s primary residence. 

Types of Reverse Mortgage Loans

HECM Reverse Mortgage

The most common reverse mortgage is a HECM (Home Equity Conversion Mortgage) because it can provide the most cash for homes valued under $1,149,825, it normally has a lower interest rate than a jumbo reverse mortgage and may be easier to qualify. However, HECM’s are limited to factoring in a maximum home value of $1,149,825 (as of January 1, 2024). That means if the borrower’s house is appraised at $1,500,000, the loan amount will only be calculated using the home’s value up to the $1,149,825 limit. 

HECM for Purchase

The HECM for Purchase allows homeowner’s to buy a home using the equity in the home they are purchasing. Some people use a Reverse Mortgage for Purchase when they are purchasing a new home to downsize from their existing property. Many retirees also use it to relocate closer to friends and family or to warmer weather. A Reverse Mortgage for Purchase requires a down payment, which in many cases can be covered by the proceeds from the sale of the former house and/or savings or other means. The down payment, combined with the Reverse Mortgage for Purchase loan, can be used to buy the new home. That means no monthly mortgage payments* are required, which can leave more money in the borrower’s pocket and improve cash flow. 

The CHOICE Jumbo Reverse Mortgage

The Choice jumbo reverse mortgage loan is only available at Smartfi Home Loans. If your client’s home is valued above the HECM limit ($1,149,825) and they want to get a higher loan amount by accessing more of their home’s equity, then consider Smartfi’s Choice Jumbo Reverse Mortgage. The Smartfi^® Choice has no home value limit and can loan up to $4,000,000!

How Will The Lender Examine The Borrower’s Credit History for a Reverse Mortgage?

For a borrower to qualify, the lender must first carry out a credit check to ascertain the borrower’s credit history with the relevant credit agencies. However, this process is not the same as taking out a traditional mortgage. 

Lenders will examine a borrower’s payment history for: 

• Previous or current mortgage balance/mortgage insurance debt 
• Previous or current property-related expenses 
• Revolving accounts 
• Installment debts 

Other factors lenders consider include a good credit profile, the appraised value of the property, and annual taxes. 

So, can a reverse mortgage affect the borrower’s credit? The answer is no. However, using the funds to pay off other debts may positively affect their credit reports and can boost their credit score. 

Reverse mortgages traditionally do not have any effect on Social Security or Medicare, but clients should always consult their tax advisor or appropriate government agency for any affect on taxes or government benefits.

How Lenders Review Reverse Mortgage Credit Score History

Before lenders approve loans, they will examine a borrower’s credit history and credit report. However, the Department of Housing and Urban Development (HUD) does not require a specific FICO for borrowers to prove satisfactory credit for a reverse mortgage. Instead they look at the borrowers overall payment history and affordability. 

If the borrower has poor credit or bad credit history, lenders will conduct further financial assessments to determine why they had accounts in default or late payments and if any extenuating circumstances apply. 

Get Help with Reverse Mortgages Today

Although requirements for these mortgages are not as strict as for traditional mortgages, borrowers must still meet some criteria before they can be approved. The lending criteria can be challenging to understand but Smartfi is here to help.

Contact your Account Executive to discuss how a reverse mortgage could work with your client’s credit score and history. If you’re interested in offering reverse mortgage products, get in touch with us today here or by phone.