What is the Minimum Credit Score for a Reverse Mortgage Loan?
My credit is not stellar. Does this mean I cannot get a reverse mortgage loan?
Although your credit and income will be analyzed, currently there isn’t a minimum credit score requirement for a reverse mortgage loan.
This does not mean that your credit will not affect your chances of getting the loan. The lender will indeed review your credit and income to establish two things:
- You have enough income to pay your minimum monthly bills. This will include such things as credit card payments, revolving loan payments, property charges (such as your property taxes, homeowner’s insurance, HOA dues, etc.) and a calculation for your utilities.
- You have the propensity to pay these bills in a timely fashion.
Although your entire payment history will be reviewed, the last 24 months will be scrutinized more carefully.
What happens if your credit is not so great? Does it mean you will be turned down for the loan?
Not necessarily. The first thing your loan officer should do is ask for detailed explanations regarding your payment history. Don’t be afraid to talk candidly about this. Things such as the death of a spouse, health problems, loss of a job, etc. can be used to document “extenuating circumstances”. If one of these situations apply to you, and it can be corroborated with supporting documentation, there is a strong chance you will be approved.
What if I don’t have any extenuating circumstances? Will I be rejected?
You won’t necessarily be turned down for the loan. However, the lender will most likely require a set aside to pay your property taxes and homeowner’s insurance on your behalf. This is known as a “lifetime expectancy set aside” (LESA). The big difference between an escrow account (typical on a regular mortgage loan) and a LESA, is that the LESA is “for life”. Therefore, the lender will add your monthly property taxes and homeowner’s insurance together and multiply the result by the lifetime expectancy of the youngest borrower on the loan. It is not uncommon for this to be 15 years or more. As you can imagine, this can be a substantial amount of money. However, it is important to remember that these are charges which will now be paid on your behalf, so you will not have to pay them from your own accounts for as long as the LESA lasts.
If you have more questions about the LESA, or would like to discuss your personal circumstances, please give us a call!
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