Welcome to “Ask the Pros” – where your questions meet the wisdom of those who understand the ins and outs of reverse mortgages! If you’ve ever had questions about unlocking the potential of your home equity, navigating the ins and outs of reverse mortgages, or making informed decisions about your financial future, you’re in the right place.
In this exclusive series, we bring you insights and expertise directly from team members at Longbridge Financial who are helping to shape the reverse mortgage industry. Our team of seasoned professionals will field common questions, unravel complexities, and provide invaluable insights to empower you on your financial journey.
Whether you’re a homeowner considering a reverse mortgage, a financial advisor seeking new perspectives, or simply curious about the unique retirement tool, “Ask the Pros” is your go-to source for reliable information. Join us as we explore the nuances of reverse mortgages, debunk myths, and uncover strategies to make the most of your home equity and empower yourself with the knowledge you need to make informed decisions.
Our first pro of this new series is Allen Chao, Longbridge’s Vice President of Inside Sales. Allen leads a team of incredible loan officers who work with our valued clients every day, giving him an unmatched insider perspective. We sat down with Allen to discuss different qualifications and considerations potential borrowers face when they apply for a reverse mortgage. Let’s see what he had to say!
Q: What are the qualifications for a reverse mortgage?
A: This is one of the most common questions that we get from borrowers just because the reverse mortgage is so different from a traditional mortgage. At a high level, the basic qualifications for a reverse mortgage include meeting the minimum age requirement – as low as age 55, depending on the product you choose1 – and owning a home that you live in as your primary residence. And as with any mortgage, you must also be able to meet your loan obligations, keeping current with property taxes, insurance, and maintenance.
Many people incorrectly assume your home must be paid off free and clear before applying for a reverse. The truth is, it’s okay to still have an outstanding mortgage balance on your home as long as have sufficient equity – generally at least 50% of your home’s value. With a reverse mortgage, the proceeds are first used to pay off any existing mortgage balance; from there the remaining proceeds can be used as you wish.
As I mentioned, you are required to maintain the home as your primary residence, and all that means is you live in the home more than any other home. For example, you can take a reverse mortgage out on your home in Massachusetts even if you’re a snowbird and have a summer home down in Florida, as long as you spend the majority of your time each year at your home up north.
As you likely know, a traditional “forward” mortgage is very credit score driven; however, with a HECM reverse mortgage, your credit score is not really a factor. We do look at your credit history, but that is different from your credit score – we’re not checking to see if you have a FICO score above 700, et cetera. We also look at your income and evaluate your payment history on your property – more specifically, that your property taxes and insurance have been paid on time. If you are applying for an FHA-insured reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), there are specific property requirements outlined by the FHA that a borrower’s home must meet.
Part of our evaluation is actually called a “Financial Assessment” which is required by the Federal Housing Administration (FHA) in order to better protect consumers. The results of a Financial Assessment help our team know how to best structure a loan, to set you up for success, but it doesn’t impact qualifying for the loan. If you’re worried about having limited income or bruised credit history, a Life Expectancy Set-Aside (LESA) can be incorporated into a reverse mortgage in some situations. These are a pool of funds, similar to an escrow on a traditional mortgage, set up by the lender to handle the payment of property taxes and homeowners insurance on your behalf for the estimated life of the loan.
In my experience, there are some loan officers who may incorrectly tell potential clients, “Your mortgage balance is too high, so you don’t qualify,” or “Your credit history is bad, so you don’t qualify,” and that’s simply not always true. A thorough loan officer, like someone from my team here at Longbridge, will understand that sometimes there are ways to overcome hurdles like these and are more likely to present solutions that could help you get qualified.
Q: Are there specific considerations for spouses who don’t meet these requirements?
A: Yes! There are three different categories to better understand the different nuances between borrowing and non-borrowing spouses. The first category is spouses who are age 62 or above. If a spouse is 62 or older, we declare them as a borrower from the get-go, and they have full, normal borrower protections from the beginning. That category is of course the simplest scenario.
The second category is spouses who are under the age of 62. If a spouse is under age 62 but living in the home, the one consideration to be aware of is that the younger spouse cannot borrow the money themselves. However, in most instances, the older spouse would have access to all the proceeds regardless.
The good news is the younger spouse still has very strong protections as an “eligible non-borrowing spouse” in this case. These protections are very robust – even if the older spouse passes, the younger spouse does not need to pay the loan off immediately. They can continue to stay in the home provided they continue to keep up with home maintenance and property taxes and insurance. This is a big perk of the reverse mortgage loan for eligible non-borrowing spouses – the loan does not become due and payable until a maturity event occurs, such as when the remaining, younger spouse leaves the home permanently.
The third category is spouses who, regardless of age, live outside the home. If a spouse is living outside the home, this is what we call, “legally married, but physically separated.” In these situations, the spouse living in the home obtaining the reverse mortgage would need to have their physically separated spouse sign off on required documentation. These documents essentially say, “I have no claim to the reverse mortgage and I understand it.” So, the physically separated spouse is not a borrower, nor do they get the usual non-borrowing spouse protections.
Q: What are some common reasons why people don’t qualify for a reverse mortgage?
A: In my experience, disqualifications are most often property related. For example, with a HECM reverse mortgage, condominiums must first be FHA-approved, which can be a potentially challenging process. Thankfully, at Longbridge, we offer the Longbridge Platinum reverse mortgage which does not have this FHA requirement, among other advantages. That’s one of the benefits of working with a large national lender like us – we have a broader menu of options to support a wider range of property and borrower scenarios. Another common example of being disqualified for property reasons is manufactured homes. Applicants with manufactured homes cannot have any portion of the land, even a just a small corner of it, in a flood zone, due to liability reasons.
At the end of the day there are ways to work around certain limitations and, like I said, working with an experienced team of reverse mortgage professionals makes a world of difference. It may take time, it may even take a few years, but in many cases, we can help find a solution that works for your unique financial situation and retirement goals.
Thank you, Allen, for sharing your insights and providing a deeper look at reverse mortgage qualifications!
_____________________________________________________________________________________
If you’re interested in learning more about reverse mortgages and to find out if you qualify, contact our team today. Our reverse mortgage consultants will get to know you and your financial situation to help you determine whether a reverse mortgage is the right fit for you. Empower your financial journey – reach out to Longbridge Financial now to make informed decisions about unlocking the Power of Home™️.
