If you’re applying for a reverse mortgage for the first time, you will be subject to meeting new minimum 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.
Minimum Income Requirement
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.
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?
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).
Is there a debt to income ratio (DTI) required for a reverse mortgage?
Reverse mortgages do not consider debt to income ratios. Can you get a reverse mortgage if you are self-employed? Self-employed borrowers are eligible for reverse mortgages. If their self-employment income is required to meet the residual income, the borrowers would need to supply 2 years tax returns but if borrowers qualify on other income alone (i.e. Social Security income), many times lender will not ask for the tax returns.
What types of income are acceptable to qualify for?
HUD uses the same income requirements as a forward or traditional loan when considering stable monthly income for reverse mortgage borrowers. If borrower have a history of rental income, boarder income can also be used if it is claimed on income taxes.
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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