Seniors with no income or bad credit: Try a reverse mortgage

November 07th, 2011

Many seniors face mounting debts and drops in the values of their retirement investments. Those homeowners with substantial equity could use reverse mortgage to pay off their debts and re-establish financial security.

Reverse mortgage benefits

The reverse mortgage is a home refinancing product for seniors only. Mortgage prequalification is based on the value and equity of the property; the borrowers' income and credit are not considered.

A reverse mortgage can be used to exchange home equity for cash or even to purchase a home with no mortgage payments. Use a reverse mortgage to:

  • Supplement income with monthly payments, lump sums, or lines of credit.
  • Put off filing for Social Security benefits, increasing your eventual payout.
  • Use reverse mortgage to purchase a new home.

Qualification is easier than for traditional mortgage refinance

Reverse mortgages have very few requirements compared to a traditional refinance mortgage or home purchase. They are:

  1. The youngest borrower must be at least 62 years old.
  2. The home's mortgage should be paid off or nearly so.
  3. The property must be your primary residence.

That is it. If you meet those three criteria, you are probably eligible for a reverse mortgage. That means there is absolutely none of the following:

  • No income qualifying Eligible borrowers need not have verifiable income to qualify for a reverse mortgage, because you aren't required to make monthly payments.
  • No credit qualifying Because monthly payments are not required, your credit rating is irrelevant.

The top obstacle to reverse mortgage?

One obstacle to seniors obtaining reverse mortgages has nothing to do with loan qualification. It's the objections of the seniors' children. Those who don't understand reverse mortgages are more likely to be uncomfortable with their parents taking out a reverse mortgage.

When evaluating how a reverse mortgage might be helpful to parents' financial planning and well-being, heirs should understand that reverse mortgages can be a very good financial tool. For seniors who don't have a lot of resources for meeting their needs during retirement, reverse mortgages may be the only available source of money. You can have your children attend reverse mortgage counseling with you to inform them of the pros and cons. Reverse mortgage counseling is required for those who take out FHA reverse mortgages called Home Equity Conversion Mortgages, or HECMs.

Whu can benefit from reverse mortgages

Those who have the income and credit rating to be approved for traditional home equity loans should probably look there first--it's a lower cost option. But those with little to their names other than their home equity should look into reverse mortgages to increase their comfort and security.

Posted By :

Dennis is co-owner and broker of record for Stratis Financial in Southern California. With over twenty years experience in the mortgage industry he has helped homeowners save millions of dollars refinancing their homes. His Weekly Rate and Market Update keeps his clients and real estate professionals educated and informed on the mortgage industry and the economy. Dennis has a degree in Economics and Political Studies from Pitzer College and is married with two children.

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