Borrower Qualifications

Finding Out If You Qualify for Remortgage

Almost anyone who meets the basic requirements can get a reverse mortgage. You don’t need perfect credit, you don’t need a down payment, and you don’t need a steady job. In fact, none of those points matter in a reverse mortgage.

Aging gracefully

Though you may feel discriminated against because of your age in some facets of life, reverse mortgages were designed especially for you. In order to receive a reverse mortgage you must be at least 62 years old. No exceptions.

But wait, it gets even better. The older you are, the better you’ll do on a reverse mortgage. Why? Because lenders know that the younger you are, the longer they’ll have to pay you. Lenders use actuarial charts (just like insurance companies) to guess how long you’ll be in your home. The charts aren’t a crystal ball, and they’re not always right, but they give a pretty good estimation. Then lenders calculate your loan based on your age, your home’s value, and whatever the current interest rates are.

Look at Table 3-1 for an example of how your age can work for you in a reverse mortgage. Let’s say our borrower, Nathaniel, owns a home worth $235,000 in Jenkintown, PA, and owes no outstanding mortgage debt. He’s choosing a Home Equity Conversion Mortgage (HECM) reverse mortgage product and wants a lump sum, giving him all his money in one big check. We’ll pretend for our purposes that interest rates don’t change into the future (although in real life, Nathaniel’s initial loan amount would be affected by rising and falling rates). The table shows how much Nathaniel could expect to borrow if he closed the loan at particular ages. Notice that the older our fictitious borrower gets, the more money the lenders are willing to loan him.

How Age Affects Your Loan

Age at time of Total loan amount loan closing available

1. 62 $116,754
2. 67 $126,806
3. 72 $137,401
4. 77 $148,796
5. 82 $160,349
6. 87 $171,433
7. 92 $182,354

The typical age for reverse mortgage estimates is 75, because by then you’re old enough to get a pretty hefty check but young enough to be able to enjoy your new income. When you see examples of reverse mortgage calculations (in this book and in the world at large) you’ll probably notice that the hypothetical borrower is 75. It’s not a magic number, and by no means should it be seen as any sort of limitation, but as far as the lenders go it’s the perfect win-win age.

There’s a disadvantage to this age system, however. If a couple, ages 62 and 75, want to get a loan, you may think they should be able to get a pretty good-sized check since 75 is just about the ideal reverse mortgage age. But that’s not the case. For most reverse mortgage loans, the age used to calculate the loan is that of the youngest borrower (sneaky, isn’t it?). If Nathaniel (age 75) and his youngest brother (age 62) want to live together to save some money, their reverse mortgage will be calculated using his brother’s age, which means a lower loan amount. On the other hand, Nathaniel and his brother may find that they can get a larger sum with a Fannie Mae Home Keeper loan (see Chapter 6) because Fannie Mae uses a combination of borrower ages to determine the available funds.

No matter what your age, if you are interested in getting a reverse mortgage, find out what your options are from your originator

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Knowing when you shouldn’t get a reverse mortgage

As a rule of thumb, reverse mortgages are designed for people who plan to live in their homes for at least five years (but more likely 8 to 12 years). Some senior homeowners are over optimistic about their current living situations, believing that they can continue living in their homes indefinitely, even though their doctor or concerned family has other ideas. Others aren’t patient enough to wait a few years to make the loan worthwhile before picking up and moving to Cancun. Of course, if you’re on the elder end of the borrower spectrum and need the funds from a reverse mortgage despite the fact that you may only hold the loan for a couple of years, don’t let that five-year timeframe keep you from seeking out the loan. Again, only you and your lending professionals know what’s right for you, but you’ll probably want to think twice about getting a reverse mortgage if any of these apply to you:

Your home is damaged beyond the point of repair. Reverse mortgages are great for revamping a few rooms, or making a home more accessible, but they don’t work miracles. Unlike the shows you may have seen on TV, you won’t be able to tear down your home and build a new one if there are major structural or foundation problems. Dangerous electrical or plumbing may also be an issue. Sometimes it’s better to cut and run. You may be able to purchase a new home with the Home Keeper for Purchase, but don’t expect anyone to let you stay in a house that’s crumbling.

You’re young and have plenty of money. Just because you’re 62 doesn’t mean you need to run out and apply for a reverse mortgage. The lenders aren’t going anywhere — there’s no rush. In fact, as we noted earlier, the younger you are, the less money you’ll get from your loan. If you can live off your nest egg for a few years, wait to get your reverse mortgage. Not only will you save money, you’ll get more money as well.

You think you’ll want to move out in the next couple of years. Reverse mortgages get less expensive the longer you have them. Moving out too soon means you’ll pay more for the privilege of having a loan, which is less money you’ll have for your fun and extravagant lifestyle or for the needs you took the loan out for in the first place. If you stay longer, you win. A reverse mortgage isn’t usually the best short-term solution.

You are ill and don’t believe you’ll live as long as the lender predicts. Just like moving out too soon, it doesn’t make sense to take out a loan that you know you’ll never be able to fully enjoy. Keep in mind, however, that sometimes need overrides financial considerations and the reverse mortgage is still your best choice. The loan may allow you to live out your last years more comfortably than your could otherwise manage. Make sure your counselor explains the pros and cons, and don’t be afraid to tell him or her about your condition. They need to know all the facts.

You have a spouse or other person living in your home who doesn’t qualify for a reverse mortgage. The loan becomes due and payable when the borrower (or last remaining borrower) permanently leaves the residence. That means if you get the loan when you’re 65 and your spouse is 57 and you die or move out for any reason, your spouse will be responsible for paying off your mortgage, which often means selling the house. If you can’t add all residents to the mortgage, you may want to wait or seek out a different option.

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Figuring Out the People in Your Mortgage: Originator

Your originator is the person who sets your loan in motion. The originator meets with you to determine whether the loan you’ve decided on is really the best for your unique circumstances, helps you fill out the application, and submits it to the underwriters (who verify your information) and the lender (who actually signs your checks). You’ll probably have at least two meetings with the originator: one to fill out the application and another to finalize details at closing. However, most people end up at their originator’s office three, four, or more times over the course of their loan process. You may not choose a loan to apply to right away, have questions regarding your loan in progress, need to bring in additional information, or a whole host of other reasons to visit. That’s why you and your originator become such close friends before your loan is completed.

Time is money, and although originators don’t charge by the hour, there are fees involved for originators’ services. Many of the fees you see on the Good Faith Estimate originators are required to provide are additional closing costs unrelated to the originator’s efforts. A Good Faith Estimate lists all of the approximate costs involved in getting your loan, from appraisal services to stamps. All told, these fees can add up to several thousand dollars. That’s a whole lotta cash to plunk down all at once, and the originators and lenders realize that it may present a burden. After all, if you had a few thousand dollars to spend, you may not need this loan. Because of this, you can roll the amount of most, if not all of your fees and closing costs into your loan. That way, the costs are absorbed into the reverse mortgage and become spread out over several years.

Finding a reverse mortgage originator is easy once you know where to look. Keep these points in mind when you’re narrowing down the search:
Originators should be experienced in reverse mortgages.

Do not pick a traditional loan originator, because they probably don’t have the expertise that a reverse mortgage originator has.

While it’s not a requirement, you may feel better if your originator is a member of the National Reverse Mortgage Lenders Association (NRMLA). They have access to all kinds of resources and materials that others may not.

Your originator should be patient, never pressure you, and encourage your family to attend your meetings (if you feel comfortable having them there).

Most of all, you have to feel comfortable with your originator. If he or she doesn’t feel like someone you’d trust with your future financial well being, trust your instincts. You won’t hurt his or her feelings.

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