Reverse Mortgages And Credit Score

A good credit score isn’t crucial to secure a reverse mortgage,  and a bad credit score won’t necessarily disqualify you. However, that  doesn’t mean a lender will completely dismiss your credit score either.  Here’s what potential borrowers will want to know about credit scores  and getting a reverse mortgage. 

When you apply for a reverse mortgage,  the lender will want to make sure you can maintain the home and pay  your property taxes, insurance premiums, and homeowner association (HOA)  fees, if applicable. As part of assessing a borrower’s ability to meet  the financial obligations of the loan, they will pull a credit report  and review your credit history. They may also probe any delinquencies in  your credit history and investigate whether there are extenuating  circumstances for late payments or overdue accounts.  

Other factors, like a borrower’s age, home equity, and current  interest rates, are more important to determine eligibility for a  reverse mortgage. The lender may also look at your sources of income,  like a pension, Social Security income, and investments. 

Before you apply for a reverse mortgage, it may be a good idea to  pull your credit report to check its accuracy. The credit report will  also help you identify areas a lender would view as problematic. 

Though a poor credit score isn’t likely to make you ineligible for a  reverse mortgage, there are specific parts of your payment history that a  lender will examine closely, namely those related to your property over  the previous 24 months. 

If you have a history of late payments, a lender may ask you to take  additional measures to ensure you have the funds for property-related  expenses. You may be required to set up a Life Expectancy Set-Aside  (LESA). This is an account funded by loan proceeds and earmarked to  cover property taxes, HOA fees, and insurance costs.  

The money is set aside to ensure the borrower can pay these future  costs. The amount deposited will depend on your monthly property tax,  insurance costs, and the estimated life expectancy of the youngest  borrower. In cases where a borrower may outlive their projected life  expectancy, the borrower will be responsible for making payment  arrangements for property-related expenses. 

Securing a reverse mortgage will not impact your credit. Since you’re not required to make payments  to the lender, it is unlikely a reverse mortgage will even appear on  your credit report. One overlooked benefit of a reverse mortgage is its  potential to help borrowers pay off high-interest or long-standing debt  that has negatively affected their credit score. While the reverse  mortgage won’t be directly responsible for improving your credit rating,  it could be useful for helping you do so.  

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