If you’re applying for a reverse mortgage for the first time, you will be subject to meeting income requirements as part of the financial assessment underwriting guidelines. The financial assessment for a reverse mortgage is much like the process for getting a traditional or “forward” mortgage.
It’s a way for the lender to understand your financial situation and determine that you’ll still be on solid financial footing after getting the reverse mortgage. In addition to credit analysis, income is one of the most critical components of the financial assessment.
But income may be more complex than it sounds. In addition to the most traditional types of income you might have, such as Social Security or income from a full-time job, your lender will ask for all types of income.
Types of income
Employment income — This is the most traditional type of income. It’s income you earn through working for an employer.
Documentation: Your lender will ask for your IRS Form W-2, which should document your income on a calendar year basis. The lender must verify two years of employment and income with documentation.
You will also need pay stubs for at least the most recent 30 days and one additional form of employment verification, such as a statement from your employer. (Some alternative forms of documentation may apply.)
Non-borrowing spouse or other household member income — If you are getting the reverse mortgage, your spouse will not be named on the loan, or if someone lives in your home but does not own the home and will not be named on the loan, their income may also apply.
It’s not considered income for the purposes of the lender’s assessment, but it’s worth mentioning and documenting in case it can help show a more accurate picture of your finances.
Documentation: You’ll need to provide the Social Security number of the person whose income you’re including and the documentation required for your own employment income.
Part-time employment income — generally covers less than 40 hours per week.
It counts toward your income under the financial assessment if you have had the job for at least two years and are likely to continue in the job. If your wages have changed, your lender will average your wages over time.
Overtime and bonus income — Additional income that falls outside your average salary in the form of overtime or bonuses.
The lender must verify that it has been received for at least the past two years and is likely to continue.
Seasonal employment income — This may be earned on a seasonal basis rather than a year-round basis.
Again, it must have been earned for at least the last two years and is reasonably likely to continue the following season.
Accessory Dwelling Unit (ADU) — A smaller housing unit on a property, often called an ADU, can bring in rental income. If you want to use this rental money to help qualify, the underwriter must check how much you can earn from your ADU. The lender will ask for specific forms that show the usual rent prices in the area. If you already have future rental agreements, the bank might want to see those, too.
There are other types of income and benefits that the lender will take into consideration that are worth noting.
These include things like:
- Employer housing subsidy
- Income from employment from a family-owned business
- Self-employment income
- Commission income
- Rental income
- Disability benefits
- Pension or retirement benefits
- Annuity income
- VA benefits
- Social Security
- Workman’s compensation
- Public assistance
- Interest, dividend, and trust income
What are the residual income requirements for a reverse mortgage?
Is a debt-to-income ratio (DTI) required for a reverse mortgage?
Can assets count as a source of income?
Why do lenders care about income if there are no monthly payments?
ARLO recommends these helpful resources: