An important part of qualifying for a reverse mortgage is evaluating a borrower’s credit history. This article explains the credit qualifications necessary for a reverse mortgage in 2024, highlighting key factors such as payment history, satisfactory credit, and additional considerations that underwriters will evaluate in the loan approval process.
How will my credit history be examined for a reverse mortgage?
Your lender will evaluate your credit history as part of the financial assessment and will require a credit report for all borrowers to document that history. However, failure to prove satisfactory credit is not necessarily a reason to reject a borrower, according to the Department of Housing and Urban Development (HUD), which set the new rules.
Instead, it means that if your credit is not satisfactory, lenders must conduct further analysis of your accounts to determine the reason for things like late payments or overdue accounts (if they apply) and whether there are extenuating circumstances that may have caused them.
Satisfactory Credit Requirements for Reverse Mortgages
The lender may determine that the borrower has satisfactory credit if:
- The borrower has made all housing and installment payments on time for the previous 12 months and has no more than two 30-day late housing or installment payments in the last 24 months.
- The borrower has no “major derogatory credit” on revolving accounts in the previous 12 months.
HUD defines major derogatory credit as any revolving credit payments within the last 12 months being more than 90 days late and three or more revolving credit payments within the previous 12 months being more than 60 days late.
Evaluating Payment History: Prioritizing Debts and Expenses
In assessing your creditworthiness, lenders will evaluate payment histories in the following order:
- Current or previous mortgage debt and housing-related expenses
- Installment debts
- Revolving accounts
Credit Considerations for Reverse Mortgage Eligibility
Lenders will also look into several other credit issues. If these items appear on your credit report or other records, they must be addressed even if the issues are over two years old.
Among other things, these credit issues might include:
Collections and charge-off accounts
While these do not have to be paid off or placed under a payment plan, the lender must determine why these accounts were placed in collection or charged off.
Additionally, the borrower must provide a letter of explanation for each collection or charge-off account.
These must be resolved or paid off before or at closing.
If they are not paid off, the borrower must:
- Have entered into a valid agreement with the creditor to make regular payments
- Have made timely payments for the last three months
Delinquent federal non-tax debt
If it is determined that a borrower has delinquent federal non-tax debt, the lender must verify it with a creditor agency.
If the creditor agency verifies the debt is valid and delinquent, then the borrower is ineligible for a reverse mortgage until the delinquency is resolved.
However, this debt may be considered a mandatory obligation and may be paid off at closing using the reverse mortgage proceeds.
Delinquent federal tax debt
Borrowers with delinquent federal tax debt are ineligible for a reverse mortgage.
To become eligible, the borrower must either pay off the debt (before or at closing) or:
- Have entered into a valid agreement to make regular payments and
- Have made timely payments for at least three months
Delinquent Federal Housing Administration-insured mortgages
Borrowers with delinquent FHA-insured mortgages are ineligible for a reverse mortgage until the delinquency is resolved.
However, if the reverse mortgage proceeds will be used at closing to pay off the delinquent FHA-insured mortgage on the borrower’s principal residence, then the borrower is eligible.
Other delinquent FHA-insured mortgages
- Must be resolved before the application can continue to be processed
- Are not mandatory obligations and may not be brought current or paid off at HECM closing using the reverse mortgage proceeds
Reverse Mortgage Credit requirements Vs. Other Mortgage Types
|Credit Score Required
|No Min. Credit Score
|620+, higher for better rates
|620+, varies by lender
|Review of payment history on debts and taxes last 24 Months
|Thorough credit history and score assessment
|Good credit history with proof of timely payments
|No DTI requirements
|Required, proof of stable income
|Required, along with home equity
|Less stringent than other loans
|Typically below 43%
|Varies, but generally below 50%
|Property charges must be current in last 24 months
|Loan-to-value ratio, property type
|Loan-to-value ratio, may require an appraisal
What are the credit requirements for a reverse mortgage?
Can you get a reverse mortgage if you have bad credit?
Can you get a reverse mortgage if you have filed for Bankruptcy?
Does a reverse mortgage show up on a credit report?
Will a reverse mortgage impact your credit score?
When does the lender pull a “hard inquiry” on your credit rating?
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