In April 2015, the Federal Housing Administration (FHA) implemented new rules to make reverse mortgages safer. A borrower financial assessment was one area that FHA rebooted at the time. Now, if you apply for a reverse mortgage, your loan originator will go through a review of your income, cash flow and credit history.
This all is meant to be able to tell if you’re financially ready to handle a reverse mortgage before you decide to do so. To date, the financial assessment has reduced the number of homeowners defaulting on loans.
Preparing for the credit check
The credit check may sound challenging, but if you’re in good financial standing, you may have a good chance of being approved.
The lender will examine your credit history from the last two years (at least) to make sure you are current on your mortgage, property taxes and homeowners’ insurance, and that you have a history of making payments on time. If you were late in making any of these payments over the last two years, you may have to explain and document the reasons why the payments were late. In some cases, the circumstances leading to your late payments might be able to serve as extenuating circumstances to work in favor of your getting approval for the loan.
There are also set asides, for certain borrowers who are determined in the financial assessment to need to set aside the money in advance, to pay for taxes and insurance. The set aside will keep a portion of your reverse mortgage proceeds on reserve to make sure you will be able to meet the loan obligations.*
For more information on your reverse mortgage eligibility, please contact a Finance of America Reverse mortgage professional today.
*The home must be the primary residence and the homeowner must live in and continue to maintain property charges including property taxes, fees, hazard insurance and maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid.