Income for Reverse Mortgage 

Minimum income for reverse mortgage? 

HUD and other reverse mortgage programmes use an income qualification component. You may wonder why there's no fee, but there's a good explanation. 

HUD doesn't want applicants to secure a Reverse mortgage loan SantaClara if it won't allow them to live comfortably in the home. 

HUD has analysed hundreds of thousands of reverse mortgages and has seen that there is still a risk of default for borrowers unable to pay their taxes and insurance (which is a default on the loan causing the lender to initiate foreclosure proceedings) when the borrowers still cannot afford the home and their basic expenses. 

Not qualifying? Options 

As harsh as it seems, it's preferable for the borrower if they are forced to make other arrangements, such as downsizing, relocating, or renting a room, before getting a reverse mortgage and using their equity. There's nothing worse than a borrower using their equity to stay in their property for several more years, only to realise they can't afford it and can't relocate. There are additional methods a lender can help you meet reverse mortgage residual income standards if you can afford the home and its expenditures following the loan. 

First, define residual income. 

The residual income approach is used by HUD to qualify most borrowers for income. After paying your mortgage, taxes, insurance, HOA dues, and 14 cents per square foot for utilities, you must have a particular amount of money left to live on each month, based on your location and family size. You have no debts and are single, therefore after housing fees, taxes, insurance, and utilities, you require $529 to $589 a month to live on. You'd agree that this isn't much money to pay for transportation, insurance, food, and anything else, therefore HUD is already being generous on qualification. 

Asset loss for residual income 

And to make it easier for borrowers, if you have assets but not enough income, they allow reverse mortgage lenders to utilise the assets as a type of income even if you aren't using them that way (knowing you can if you need to). If you have money in the bank, HUD enables a procedure called asset dissipation, in which the lender thinks you consume a fixed amount of your assets monthly and adds that amount to your income. Some of the loan proceeds can be used. 

Debt payoff to qualify 

If you pay off the loan before using it, you won't have to repay it and won't incur interest. Consider a credit card with a $10,000 limit that you only spent $5,000 on before closing. You must pay back $5,000 plus any interest on that amount, but not the entire $10,000 line because you didn't utilise it all. LESA's unused funds are the same. If you don't utilise the money, it's unborrowed and not due. 

So, did your reverse mortgage lender try all these methods? Credit score shouldn't disqualify you for financing. Delinquent credit, especially in the recent 24 months, could hurt your application, but a reverse mortgage requires no minimum score. It never hurts to obtain a second opinion. If the lender considered all these techniques and there's no way to meet HUD criteria, you must make hard decisions. Is it in your best interest to downsize, which could mean moving? 

Extras 

You may be able to use a reverse mortgage to buy a less expensive home that is better for you in location and function. Is your home big enough for a roommate? Do you want one? Do you have family members/heirs who might support a familial reverse mortgage (where they pay you a monthly stipend and the final repayment is the property)? These are all choices, but it's advisable to check with family or a financial counsellor to see if there are any you haven't explored. 

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