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What Does the Lender need to Know on a Reverse Mortgage?

Jan 11, 2008
You've made the decision to get a reverse mortgage and you've heard that there is no income or credit qualifying so you think you will have no issues getting your loan. All you have to do is get your counseling, sign all the paperwork and you're set, right? Not exactly. There are some things you need to know about the programs that could keep you from qualifying, or your property from qualifying and sometimes these items are overlooked by loan officers and prequalification systems.

Firstly, there are no minimum credit score requirements, but you can't currently be going through bankruptcy proceedings and if you are still paying on a bankruptcy repayment schedule, then you may be required to have a minimum number of months paid in a timely manner. If you are on a schedule, then you need to let your lender know. The reverse mortgage programs I have worked with will not allow you to be delinquent on a federal obligation. If you have co-signed for a family member who has delinquent government-insured student loans, that could keep your reverse mortgage from being approved. Foreclosures do not mean an automatic denial under most reverse mortgage programs, provided that the property has not already gone to sale.

The next thing that escapes many prequalification systems is your property type. Condominiums are acceptable, but the project has to meet certain criteria. For instance, if you are applying for the government HECM loan, the lender checks an approval list and if your project is on it, no problem. If it is not there, they can apply for a spot approval for your loan. If the project has been rejected, your project is not eligible for the government program and chances are whatever made it ineligible for that program may also render it ineligible for other programs.

The project typically cannot be mainly rentals, they must be 51% or more of the units occupied by the unit owners. Manufactured homes built after June 15, 1976 are acceptable for the government HECM program provided they are on a permanent foundation, are taxed as real property and the Manufacturer would have had to obtained HUD tags when the home was built and those tags still have to be available for the appraiser to view at the time of appraisal. Single family residences in commercial or agricultural zoned areas, properties with excess acreage, or unique properties could also render a property ineligible for a reverse mortgage.

With senior borrowers, many times you have title issues to keep in mind as well. Trusts, conservatorships, powers of attorney, all are fine as long as they are done so that they meet reverse mortgage requirements. If you have any of these instruments, let your reverse mortgage originator know right away so that he or she can have them reviewed for acceptance. Also, when you have lived in your property for 20-50 years, there are any number of things that can come up on the title that may need to be resolved. If you are aware of any title issues (liens from lawsuits, back taxes, work that needed to be done), again, let your originator know as soon as possible so that those issues can be resolved before they delay your loan. Better to find out about all potential issues before costs are incurred or a lot of time is spent.
About the Author
Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762

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