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Reverse Mortgage Income Requirements

Hi! I'm ARLO™, ask me anything about the current income requirements on reverse mortgages and I'll fetch your answer immedietly!
 

Answered By Our Experts

Question From Carolyn W. on 10/11/2018

My husband and I are thinking about a reverse mortgage. Can my daughter and grandson also live there. Is that ok.I was told not to tell the appraiser that anyone lives with us, why?

Expert Answer

Hello Carolyn,

HUD uses a residual income method to qualify borrowers.  The residual requirement is higher depending on how many people are living in the home.  Utilities, food, and all living costs are higher for 4 people than for 2.  Yes, you absolutely can have your daughter and grandson living in the home with you, but the amount of income under the HUD financial assessment guidelines required to qualify for a family of 4 is higher than for a family of 2.  The lender should not have told you not to say anything to the appraiser, that indicates that they may not have been truthful on your loan application.  It is ok to have someone there temporarily and you do not have to claim them as permanent occupants, but if they live in the home permanently, you should be listing them as occupants and the originator should be working to make sur that you qualify legitimately under the HUD rules.

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Question From Bonnie B. on 7/17/2018

What are the financial requirements to qualify?

Expert Answer

Hi Bonnie,

In 2014 HUD announced the final version of their financial assessment guidelines which they implemented in 2015. Borrowers have had to meet income and credit criteria since that time.  Since the HUD manual dealing with this subject is many pages long and would be very difficult for us to cover in a blog post, I will link to that information here.

But I will tell you borrowers have to show overall fair credit with an emphasis on the past two years - especially on the payments dealing with the obligations of the home (mortgages, taxes, insurance, HOA dues, etc). Borrowers have to have minimum disposable income after all debts are paid and the amount is determined by the household size and the area of the country and how expensive it is to live there.

The required amounts are not great and borrowers who do not meet the residual income requirements should seriously consider whether or not this is the right loan for them as they would still be unable to live in the home comfortably even with the loan.

And you can always visit our website to see if the loan would be right for you. There is no cost,  pressure or obligation.  Check it out at https://reverse.mortgage/calculator.

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Question From Donna M. on 6/03/2018

My husband just passed away recently, we still owe on the home. I am 67 and cab not work due to heart issues. Can I get a reverse mortgage?

Expert Answer

Hi Donna,

There are financial assessment requirements but they are not really difficult to meet. If you cannot, you would not in all likelihood be able to pay your taxes and insurance and still be able to live comfortably in the home even with the reverse mortgage.  Please feel free to visit my calculator here and you can get a free no obligation proposal to see if the loan will work for you.

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Question From Jo G. on 5/20/2018

I am 73. I (and multiple other homeowners) are being bought out by the builder of my home which I bought in 2015 and being offered a new home, which I would very much like to buy. Here's the problem: My income is partially royalty income from a book I wrote a few years ago. Because that income is declining, traditional lenders will not include it in my qualifying income for the new purchase. Here are the facts: I have excellent credit. The cost of the new home is 556,000. I will be putting 344,000 down. I am looking for a loan of 212,000. My non arguable (retirement + SSA) income is 44,000 per year. (My non-countable royalty income was $25,000 in 2017, and definitely declining. It looks like it will be about $20,000 in 2018). The property tax on the new home will be approx. 9,000 a year. The insurance is about 800 a year. The HOA dues are about 4,000 a year. I will have about $70,000 in the bank as a backup. Can I qualify for one of your reverse mortgage loans? If I am understanding your website, reverse mortgages can be used to purchase new homes. Thank you so much for your help, Jo

Expert Answer

Hi Jo,

FHA Reverse mortgages use a residual income method to qualify borrowers – not a ratio method.  If your credit is good, the financial assessment will look at your monthly income and work backward to determine your eligibility as long after all your debts are paid, you have sufficient residual income on a monthly basis.  So let’s look at what you have given me.  $44,000 per year is $3,667 per month all by itself.  Property tax of $9,000 is $750 per month taking you down to $2,917 per month.  Insurance of $800 per month is $67.00 per month which takes you down to $2850.00.  $4,000 HOA Dues are $333.00 per month or now you are down to $2517.00 per month.  HUD uses a utility factor of $.14 (fourteen cents) per square foot so if your new home is 25oo square feet, that amount for utilities will be $350.00 per month bringing you down to $2,167 per month residual income left over after all your housing costs are paid.

Now if you have any other debts that you pay monthly (car payments or credit cards, etc), those amounts would also have to be subtracted from the $2,167 that you have left so far.  HUD has different residual income requirements in different parts of the country (it’s more expensive to live in CA or NY than in FL or TX), but as long as a single person has at least $590.00 per month residual income after all debts are paid and it’s a little under a $1,000 per month for a family of two.   If you only have the obligations you listed above, then you will qualify quite nicely and you don’t even need that royalty income to qualify.

Please feel free to visit me on my calculator at and I will be happy to show you just what you can qualify for.  It’s quick and easy and we close many reverse mortgage purchases every month.

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Question From Joyce S. on 11/04/2017

Is there a limit set on your personal financial worth?

Expert Answer

Hi Joyce,

The HUD HECM is a loan, not a government grant program.  There are financial assessment guidelines to be certain that borrowers can still afford to pay the taxes and insurance once the loan is in place (not paying them is a default under the program and HUD does not want the loans to default).  There is no maximum borrowers can make or maximum net worth borrowers may have since this is not a needs-based program. 

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Question From Julie C. on 6/20/2017

If I take out a reverse mortgage on my current home, paying off the conventional loan and leaving me with no mortgage payments, could I then qualify to purchase a second home using a conventional loan as if I had no mortgage payment on my credit report. I cannot qualify on my income to support 2 conventional mortgage payments at the same time, but I could afford the one with the proceeds from the reverse mortgage as my down payment.

Expert Answer

Hi Julie,

Your question is not for us but for a conventional mortgage lender.  The question has nothing to do with the reverse mortgage and everything to do with qualification for a second home on a traditional loan (which we do none of working solely with reverse mortgages).  And since I have not originated a forward loan in more than 10 years now, I would not be much of a qualified source to answer your question on what you can and cannot do on that loan.

I would think that they would have to use the taxes and insurance you have to pay on the primary residence even though there is no mortgage payment to determine whether or not you qualify with whatever mortgage payment and other obligations there are on that property, but I would not think they would use any kind of minimum payment even though there is no payment on the loan itself.   However, as I stated to begin with, I could not make this statement as fact and would suggest you contact a lender who would make this type of loan.

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Question From Leroy on 1/18/2017

What are the requirement such as credit scores, etc to qualify?

Expert Answer

Hello Leroy,

We really don't have a minimum credit score requirement but we will be looking at your last 24 month credit history to make sure that there aren't any serious delinquencies such as late payments on your property taxes, credit card debts or mortgage obligations. If there are those problems present we would present you with an updated proposal including what's called a LESA - (Life expectancy set aside). This is an account we use to maintain your property taxes and homeowners insurance should you not meet the minimum credit standards for the program. As far as income you will be required to meet a minimum residual income requirements set forth by the FHA. It's not a full debt to income ratio type qualification but more of an ability to maintain taxes and insurance for your expected lifetime. You can learn more about the residual income requirements here.

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Question From Annie Hudson-Mcknight on 8/22/2014

Hello, My husband and I are retirees ages 66 and 67 running a home based business. We have a mortgage with a principal balance of $435,897.92 according to a recent statement from our loan servicer. The interest on our loan is 2.0% with a monthly payment of $1912.83. This is a loan modification arrangement under the Making Home Affordable Act that reduced our interest rate from 5% and lowered our payment from $3300 per month.Our combined Social Security Income is $32,000 plus net business income of about $40,000 per year. My husband was diagnosed with cancer in January 2014 and is likely only to survive for several months. Upon his death my only income will be his social security and business income for possibly only a few more years. I'm wondering if I can get a reverse mortgage and eliminate making mortgage payments and receive income?

Expert Answer

Hello Annie,

I can't really give you a full proposal without knowing all the parameters, but under the best of circumstances, running the information that you have given me tells me that the reverse mortgage would still leave you at least $87,500 short to pay off your current mortgage, and that is assuming a value of $625,500 or more and that your 67th birthday will fall within 180 days of the anticipated closing date.  If your value is $625,500 or greater and you think bringing in this much money is an option and want to discuss the programs, please let us know.  You might also contact your current lender and ask if there are any options for a lower payoff under the circumstances.

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