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Can I Get a Reverse Mortgage With Bad Credit?

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When you have bad credit, it’s easy to think you won’t qualify for any loans or financial assistance without improving your score. With bad credit, you need financial help to get you out of your situation.

While poor credit can limit your options, if you’re a senior homeowner, you’ve got a great option at your disposal — a reverse mortgage home equity conversion loan (HECM).

The good news is that the HECM reverse mortgage is NOT based on any certain credit scores. In fact, having NO credit score is okay. Since you’ll be getting paid rather than the other way around, your credit score is not the best indicator of whether a reverse mortgage is right for you.

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Should You Consider a HECM Reverse Mortgage With Bad Credit?

There are three stipulations to qualify for a HECM, which make up about 95% of the reverse mortgage market:

  1. At least one borrower must be 62 years of age or older.
  2. Your home must be your primary residence.
  3. You must have sufficient equity in the home. This is also known as having high equity on your home. Having a current mortgage or not is irrelevant. You can own your home free & clear or have a mortgage.

You’ll be happy to note that none of these qualifications rely on your credit score.

There are a few other disqualifiers, like outstanding federal debt, but credit scores are generally not a significant factor in your approval for a home equity loan.

Read our complete guide on reverse mortgages

Is a HECM Right for Me?

Bad credit aside, there are a number of other things you should consider before applying for a reverse mortgage:

  • Property taxes: As long as you own your house, you’ll need to stay up to date on your homeowners’ insurance, property taxes and home maintenance. Failing to take care of these may trigger your loan repayment, and if you cannot pay off your loan in full at the time requested, you may be at risk for foreclosure. If you have trouble paying these dues, a reverse mortgage may not be the best choice for you.
  • Moving primary residences: Do you love your home and see yourself living there for the rest of your life? Then a reverse mortgage might be right for you. You can only avoid paying back your loan as long as the house is your primary residence. If you move out for more than 12 months, your loan will be due in full. Think carefully about how long you plan to stay where you are before committing to a reverse mortgage.
  • Your heirs’ wants: Once you leave the residence or die your heirs have up to 12 months to either sell the home or refinance the home if they want to keep it. The best-case scenario for taking out a reverse mortgage is you don’t have any heirs or they’re uninterested in taking over your property. Make sure you speak with the people who will have control of your estate after your passing, so everyone can stay on the same page.

Is There a Minimum Credit Score for a Reverse Mortgage?

Although we’ve discussed how you can qualify for a home equity loan with bad credit, you may be wondering if there’s an exact threshold for your credit score to be approved.

There is no set minimum credit score that can tell you if applying for a reverse mortgage is worth your time. However, this can also be a benefit, as it means that no one is denied right away solely based on a number.

Also, remember that reverse mortgages don’t take credit into account in the same way as lenders would in most other situations. As long as you can prove you can manage your home-related payments, your exact credit score is unimportant.

View Frequently Asked Questions

How Will a Reverse Mortgage Affect my Credit Score?

Since you aren’t necessarily making monthly payments for a reverse mortgage, it’s unlikely the loan will be a detriment to your credit score. Still, that’s not to say there’s no credit check at all for a reverse mortgage. When applying for your reverse mortgage, a provider will complete a credit check as part of their financial assessment. The financial assessment checks for any barriers in your payment history that might affect your ability to keep up with your end of the loan.

In the case of reverse mortgages, a financial assessment looks at things more important than your credit score, including:

  • Whether you are up to date on your property taxes
  • If you maintain homeowners insurance
  • How well you keep up with the home through general cleaning and maintenance

These indicators speak clearly to whether you’re able to maintain the guidelines of your reverse mortgage. If you have any of these blemishes on your report — even if they happened years ago — be prepared to explain the circumstances in detail and how you plan to uphold these criteria in the future.

Can I Get a Reverse Mortgage If I Owe Taxes?

In short, yes, you can get a reverse mortgage if you owe taxes, but in most situations, you need to do a bit of work before you receive approval.

If you owe federal or state taxes, the best solution is to resolve these concerns before moving forward with the reverse mortgage application. When you’re behind on tax payments, it’s likely you’re dealing with a bad credit score, which affects providers’ willingness to work with you. If you choose to move forward with your application, you may need to complete a few extra steps to get everything in order.

First, you’ll need to talk with the IRS. Based on your situation, the IRS may have already placed a tax lien on your credit, which makes them entitled to your taxes or other personal property until you make a repayment plan. If you own a home, this lien often diminishes your house’s equity. When you talk to the IRS, you’ll come up with a repayment plan together so you can get out of tax lien status and keep your account up to date.

Now, you can start making new payments on your taxes. In most cases, providers will require proof of your repayment plan, proof of adequate income to cover the payments and at least three months of on-time payments to justify the risk of working with someone who owes taxes.

A benefit of a reverse mortgage is that any tax liens can be paid off with the proceeds from your HECM at closing. So tax liens will not keep you from qualifying for a reverse mortgage.

Choose Senior Lending Corporation as Your Reverse Mortgage Company

In many cases, taking out a reverse mortgage is simply a smart money move. You don’t need great credit to get one, and the money you receive from it can actually help you improve your credit over time.

Your retirement funds are too important for you to let them fall into the wrong hands, so you must choose a trusted company that works closely with you to help you understand everything.

If you’re unsure about whether a HECM loan is the best option for you, seek out expert guidance.

Senior Lending Corporation’s team of licensed advisors are people you can count on to help you achieve your goals and get some peace of mind about your finances. Give our advisors a call today at 800-822-1190 or reach out online to learn more about your options and get started with your reverse mortgage.

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