A reverse mortgage is an excellent retirement tool that allows homeowners aged 55 and up to access a portion of their home equity. When untapped, the home equity you have is virtually meaningless. It’s not meaningful unless you somehow tap into it. There are several ways an older homeowner can tap into their equity.
Firstly, they could sell their home. This isn’t a good option if your goal is to age in place.
Secondly, you can take out a traditional loan. However, it would mean that you’d likely have a mortgage payment for the rest of your life. Plus, sometimes many retirees have a hard time qualifying for a regular loan without income from a job.
A third option is a reverse mortgage. This can be a fantastic way for older homeowners to tap into their home equity.
Please contact us at Info@TheBroker.Finance for more info about reverse mortgage or at (714) 271-8524.
The Three Main Differences of a Reverse Mortgage VS Regular Home Loans
A reverse mortgage is a home loan just like any other. However, there are three main differences:
- Reverse Mortgages have an age requirement. The reverse mortgage age requirement depends on the loan program. We’ll talk more about the different reverse mortgage options. The age requirement for the FHA reverse mortgage is 62 and up. The age requirement for the private reverse mortgage is currently age 55 and up. However, it’s not available at age 55 in every state.
- A reverse mortgage also has an equity requirement. The equity requirement is different at every age bucket and can change periodically. When we discuss the different types of reverse mortgages below, we’ll post some current age charts.
- One paramount difference is that reverse mortgages do NOT require a monthly payment. You don’t have to make a monthly payment for as long as you live or for as long as you live in your home. You’ll need to maintain property taxes and insurance though since you still own the home.
Reverse Mortgage Option 1 | FHA Reverse Mortgage
The FHA reverse mortgage is by far the most widely used reverse mortgage option that is available in 2022. There’ve been well over 1,000,000 reverse mortgages funded since it’s inception. The minimum age requirement is age 62 and older. Also, if you’re married and only one of you is 62+, the younger spouse can live in the home for the rest of their life without making a payment just like their older spouse.
Please contact us at Info@TheBroker.Finance for more info about reverse mortgage or at (714) 271-8524.
Are there Credit Score Requirements for the FHA Reverse Mortgage?
The FHA reverse mortgage does not have ANY credit score requirements. In fact, it’s much easier to qualify for this type of loan vs a conventional loan. Here is what we look at for the most part in terms of credit. By the way, this is referred to as the “financial assessment”. We look at the most recent 12-24 month for housing and installment debts (installment would be like a car loan). You are allowed up to two 30 day late payments. Then, we look at a 12 month payment history for revolving credit (like credit cards). You can have any number of 30 day late payments. You can even be 60 days late, just not too many times.
So, if you pass this financial assessment, you are deemed to have “satisfactory” credit.
Aside from this, we don’t have a DTI requirement. Instead, a reverse mortgage has a residual income requirement. In short, in a one person household, you need to have about $589 in income above and beyond your housing expenses and credit report minimum monthly payments. For a two person household, the residual income requirement is about $950 or so (these numbers vary slightly depending on where you live).
What if I Don’t Pass the FHA Reverse Mortgage Financial Assessment?
If you do not pass the FHA reverse mortgage financial assessment, you still may qualify for the loan. The difference would be that you’d need to have a portion of the loan proceeds held back for a tax and insurance set aside. Basically, the loan servicer will hold some of the loan proceeds back to pay your property taxes and insurance on your behalf for your life expectancy. Hence, it’s called a LESA (Life Expectancy Set Aside) and it’s not necessarily a bad thing. However, if there’s not enough loan proceed available after closing costs and paying off existing liens, it could put a hitch in your giddy-up.
Please contact us at Info@TheBroker.Finance for more info about reverse mortgage or at (714) 271-8524.
Reverse Mortgage Option 2 | Jumbo or Proprietary Reverse Mortgage
This reverse mortgage option is great for homeowners that are age 55 and up (some states do have different age requirements though). Also, as the name suggests, it allows for loan amount as high as $4,000,000 and sometimes higher on an exception basis. The FHA max loan amount ranges from $380,000 – $680,000 depending on your age and home value. Plus, it changes weekly based on interest rates.
Are there Credit Score Requirements for the Jumbo / Proprietary Reverse Mortgage?
Remember, this loan option is potentially available as young as age 55. The answer to that question is, “Yes”, this reverse mortgage option has a credit score requirement. It’s not a high bar and it does vary depending on the lender. We work as a broker, so we’re aligned with all the best reverse mortgage lenders. Most lenders have a credit score requirement set at 600-620.
As for the financial assessment, it pretty much works the same way as the FHA reverse mortgage’s financial assessment. However, if some ways, it’s slightly more lax.
Please contact us at Info@TheBroker.Finance for more info about reverse mortgage or at (714) 271-8524.
How Much Can I Borrow with the FHA Reverse Mortgage?
Keep in mind that this changes weekly based on interest rates, but at age 62 you can borrow about 36.3% of the appraised value (was more like 52% when interest rates were lower). The percentage you can borrow changes a little bit with each passing year. On the other side of the age spectrum, a 97 year old can borrow about 72% of the appraised value. One quick with the FHA reverse mortgage is that even if your home is worth $2,000,000 the maximum appraised value FHA will consider is $970,800 (called max claim amount). With that said, currently, the max FHA reverse mortgage loan amount ranges from $352,400 to $699,000. So, if you need to borrow more, perhaps the jumbo reverse mortgage is better suited for you.
How Much Can I Borrow with the Jumbo Reverse Mortgage?
As of now, in 2022, a 55 year old can borrow 38.1% of the appraised value. Again, this increases a little bit with each passing year until it caps out at age 87. For the proprietary jumbo reverse mortgage, the oldest age buckets of 87 plus can borrow 60.4% of the appraised value at this time in 2022. The max loan amount for these reverse mortgages is $4,000,000. As of now, it is possible to get exceptions, but I suspect that may change if real estate softens.
Please contact us at Info@TheBroker.Finance for more info about reverse mortgage or at (714) 271-8524.
Reverse Mortgage Age Charts
Remember, these change periodically. There is no method to the madness for the jumbo reverse mortgage. For the FHA reverse mortgage, they change weekly based on the performance of the CMT. In case you’re not familiar, LTV means the percentage of the appraised value you can borrow. We didn’t do it for every age bucket, so just remember they increase with EVERY year. We started with the minimum age for reverse of age 55 an 62 and worked our way down to the oldest age buckets.
Please contact us at Info@TheBroker.Finance for more info about reverse mortgage or at (714) 271-8524.
