One commonly held notion about qualifying for a reverse mortgage is that you need good credit to be eligible. That’s a misconception. While your credit rating does come into play, it’s not the only—or even the most important—factor to qualify. Sometimes, your credit rating can be poor, and you can still get a reverse mortgage with bad credit.
What Are the Credit Requirements for a Reverse Mortgage?
There is no target credit score for the approval of a reverse mortgage. Under most circumstances, your credit history, specifically your payment pattern over the previous two years, is most important regarding reverse mortgages and credit.
Borrowers with satisfactory credit have:
- No “major derogatory credit” notices on revolving accounts for the previous 12 months
- Made all housing payments on time for the previous 12 months with no more than two 30-day late payments in the previous 24 months
- Made all installment payments on time for the previous 12 months with no more than two 30-day late payments in the previous 24 months
“Major derogatory credit,” according to the Federal Housing Authority (FHA), includes any payments on revolving accounts (i.e., credit cards) made more than 90 days after the due date or three or more payments made over 60 days after the due date.
Other credit issues that will impact your application, even if they happened over two years ago, include:
- Judgments
- Collections
- Charge-offs
- Delinquent federal non-tax debt
- Delinquent federal tax debt
- Delinquent FHA-insured mortgages
Judgments against your record must be resolved or paid off before or at closing. If they are not, you must show that you have:
- Worked with the creditor to create a valid payoff schedule, and
- Show that you have made timely payments for the prior three months.
As for collections and charge-off accounts, these don’t necessarily need to be paid off or placed on a payment plan. You will, however, need to provide an explanation letter for each collection or charge-off.
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Can I Get a Reverse Mortgage If I Owe Taxes?
Your lender will verify with a credit reporting agency whether you have a delinquent federal, non-tax debt. If the debt is valid and delinquent, you’ll be ineligible for a reverse mortgage until you pay it off. The good news is that this type of debt may be considered a mandatory obligation, which means you can pay it off in full at closing using your reverse mortgage proceeds.
If you owe federal taxes, you are ineligible for a reverse mortgage. You may become eligible if you pay off your debt at or before closing or if you have:
- A valid payment agreement with the IRS, and
- Made timely payments for the previous three months
Can I Get a Reverse Mortgage if I’m Behind on My Mortgage?
It may be possible to be approved for a reverse mortgage if you are behind on your mortgage payments. Whether or not you are approved will depend on the results of the financial assessment which the lender must complete as part of any application. This assessment was created to ensure borrowers are willing and able to uphold the terms of their mortgage. Applicants who are behind on their mortgage payments will need to document extenuating circumstances that explain their delinquency. Based on this information, the underwriter reviewing the financial assessment will consider these circumstances in making a determination.
If you are approved, you will need to pay off or resolve your outstanding mortgage debt in order to take a reverse mortgage. However, FHA-insured debt is considered a mandatory obligation, and reverse mortgage proceeds can be used at closing to pay it off.
Does a Reverse Mortgage Show Up on a Credit Report?
Most lenders don’t report to credit agencies for reverse mortgages because there are no payments involved.
Do I Need Income to Get a Reverse Mortgage?
As part of the application process for a reverse mortgage, you must undergo a financial assessment. The assessment aims to determine your willingness and ability to meet your financial obligations and comply with the mortgage requirements. The analysis covers your credit history, property charge payment history, and cash flow/residual income.
Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
