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 a lot like the process for getting a traditional or “forward” mortgage.

It’s a way for the lender to get a sense of your financial situation, to determine that you’ll still be on solid financial footing after you get the reverse mortgage. In addition to a credit analysis, one of the most important components of the financial assessment is: income.

But income may not be as simple as 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, as well as 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 but 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 as well as the same documentation required for your own employment income.

Part-time employment income — This includes employment that 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 — This is additional income that falls outside of your normal salary in the form of overtime or bonuses.

The lender will need to verify that it has been received at least the past two years and is likely to continue.

Seasonal employment income — This may be income that is 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.

Other considerations

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
  • Disability
  • Workman’s compensation
  • Public assistance
  • Interest, dividend and trust income

Income FAQs

Q.

What are the residual income requirements for a reverse mortgage?

Residual income is the amount of income you have remaining after all other obligations have been paid. HUD requires different amounts of residual income based on family size and where the property is located (due to cost of living differences nationwide). The lowest required residual income is $529 per month (for a family size of 1 in the Midwest and South) and as high as $1,160 per month (for a family size of 4 or more in the West).
Q.

Is there a debt to income ratio (DTI) required for a reverse mortgage?

Reverse mortgages do not consider debt to income ratios and instead rely on a residual income analysis to determine eligibility which is an easier threshold to meet. For example, if a single person in the state of California had a monthly income of $3,000 and total monthly expenses of $2,000 they would have a 66.67% Debt to Income Ratio ($2,000/$3,000) which would not qualify you for most (if not all) traditional mortgages. However, for a reverse mortgage loan utilizing a residual income analysis this person would have a $1,000 residual income ($3,000 – $2,000) and meet the minimum requirement of $589 for a family size of 1 in the West.
Q.

What types of income are acceptable to qualify for?

HUD will consider all the same income requirements as a forward or traditional loan when considering stable monthly income for reverse mortgage borrowers. Additionally reverse mortgage borrowers get to use what is known as Asset Dissipation. Asset Dissipation is a calculation whereby you divide the totality of liquid assets verified by a borrower by their life expectancy from the actuarial tables to derive an effective income on paper to aid in the residual income analysis. Additionally the remaining available funds from the reverse mortgage also can be considered in this calculation. For example, if a borrower who has a 180 month life expectancy has $100,000 in a savings account and is also receiving $50,000 in net proceeds from the reverse mortgage they have $150,000 that can be dissipated. When you divide $150,000 by 180 months you get $833.33 per month in income you get to add to their other “traditional” income for the residual income analysis.
Q.

Why do lenders care about income if there are no monthly payments?

Borrowers must be able to demonstrate that even with the reverse mortgage they have adequate income to continue to live in the home comfortably, paying installments of taxes, insurance and all other property charges as due because non-payment would constitute a default under the terms of the loan. For any and all types of income or assistance you are receiving, compile documentation and discuss these with your lender. It may be an important consideration in working through the financial assessment and qualifying for your reverse mortgage.

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