Financial and property requirements for reverse mortgage

What are the financial requirements for qualifying for a reverse mortgage?

The financial requirements for the loan include the following:

no income or credit qualifications are required of the borrower;
no repayment as long as the property is the primary residence; and,
closing costs may be financed in the mortgage.

As discussed, only the property is used for repayment. Since the borrower is not personally responsible, there is no need to determine whether he or she will be able to repay. This means that no one will be denied the loan or charged a higher interest rate because of bad credit, insufficient income, or excessive debt, as would happen with a standard mortgage. In fact, insufficient income to pay debts is a common reason to get a reverse mortgage loan.

Primary residence is a term without a precise meaning. Spending more than six months a year at the property is one test. Intent to occupy is another. Intent is determined by actions, such as the address used on one's driver's license, tax returns, and medical insurance forms.

Financing closing costs would decrease the amount that the borrower would receive in subsequent payments. For example, if a borrower was entitled to a US Dollars 100,000 loan and financed US Dollars 1,000 in closing costs, only US Dollars 99,000 would be left, regardless of which payment method the buyer chose to receive.

What are the property requirements for obtaining a reverse mortgage?

The property must:

be a single-family home or one- to four-unit home with one unit occupied by the borrower;
be condominiums or planned unit developments (PUD) that are HUD-FHA approved;
be cooperatives or manufactured homes that meet HUD guidelines; and,
meet minimum property standards regarding the condition of the property (borrower may fund repairs in the mortgage).

Homes for up to four families are usually treated the same as single-family homes for mortgage purposes. The requirement that the buyer occupy one of the units as his or her primary residence still applies.

Since there is no restriction on one's income or assets to get a reverse mortgage loan, it is not uncommon for a borrower to own more than one house.

The requirement that a condominium or PUD be HUD-FHA approved applies to all FHA-insured mortgages. If you could get a standard FHA-insured loan on the property, then you can get a reverse mortgage. Most condominiums and PUDs will qualify. On the other hand, a cooperative is a unit that is not owned exclusively by the occupant. The occupant owns stock in a company that owns the project with the owner having the exclusive right to occupy the unit. The way that the project was structured (the paperwork) will determine if it meets HUD guidelines.

Many older homes were simply not built to meet FHA standards. Others are in need of repair to reach the standards. The cost of making the changes to meet the minimum standards can be financed as part of the reverse mortgage. However, if the cost to meet the standards is a large amount, there may not be much left for the borrower.

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