Whether you’re mulling over the financial plan for your retirement or considering options to consolidate your debt, you’ve probably come across reverse mortgages during your research.
In a reverse mortgage, a homeowner with significant equity can borrow against that equity at a relatively low interest rate to quickly access cash, plan reverse mortgage retirement strategies, financially support a relative’s pursuit of higher education, renovate their home before selling, or use the funds any other way they’d like.
But, can you be turned down for a reverse mortgage? In this article, we’ll explore the difficulty level for securing this loan type, the likelihood that you’ll be denied, the qualifications for a reverse mortgage, and your alternatives to reverse mortgages.
How Hard is it to Get a Reverse Mortgage?
When pursuing a reverse mortgage, you can request an application from a variety of financial institutions, including:
- The US Department of Housing and Urban Development (HUD)
- The lender for your original or refinanced mortgage
- An NCUA-protected credit union
- Any bank or financial institution offering personal loans
Depending on the entities with which you pursue a reverse mortgage loan, you’ll encounter different application processes.
For instance, if you seek out a loan from your existing mortgage lender or former traditional mortgage lender, the application process may be more efficient, since the institution already has the personal information you gave them during your mortgage or refinancing application. Plus, they’ll have an existing understanding of your home equity since they’ve been accepting your principal payments throughout the life of your loan.
If you’re eligible for a proprietary reverse mortgage, your biggest obstacle is seeking a reverse mortgage will be the processing and acceptance timeline. But before you begin contacting any reverse mortgage lender, it’s important to understand the eligibility requirements.
Can You Be Turned Down for a Reverse Mortgage?
While it’s generally easy to apply—and get approved—for a reverse mortgage, you can be denied, just as for any other loan.
Some common reasons that an institution may deny your reverse mortgage application include:
- Insufficient equity – If you haven’t paid off most of your original mortgage—specific requirements vary by institution—a lender could deny your request. Be sure to check how much equity you need for a reverse mortgage beforehand.
- You’re not old enough – Nearly all lenders have a high minimum age limit for a reverse mortgage borrower. In many cases, you’ll need to be at least 62 years old to get approved.
- You’re applying for a non-primary residence – Most institutions won’t fund a reverse mortgage if you’re not living on the property. Thus, you’re unlikely to get approval for a proprietary reverse mortgage on a rental property or second home.
- Lack of financial security – Most institutions require that you show proof of income sufficient to pay routine bills for your home, including property taxes, utility bills, and homeowners insurance. This protects a lender’s collateral. If an institution funds a loan that encompasses most of your real estate or home’s market value and you neglect the property (lowering the value), the value of their collateral deteriorates.
What To Do If You’re Denied a Reverse Mortgage?
If you’re denied a reverse mortgage, you’ll need to consider other options, like:
- A personal loan from a bank or credit union
- A cash advance from a credit card company (but beware of high interest rates)
- Selling your home and downsizing to a smaller property
- A sale-leaseback agreement with a qualified buyer
Keep in mind that if you’re unlikely to qualify for a personal loan or you’re seeking a reverse mortgage to pay off credit card debt (preventing the cash advance solution), you have another option.
Sale-Leasebacks: A Reverse Mortgage Alternative
Reverse mortgages aren’t for everyone, and you’re not guaranteed to qualify or secure a loan acceptance, even from HUD.
If you need to convert your equity, but you don’t qualify for a reverse mortgage, consider looking into a sale-leaseback. Sale-leaseback solutions can help you convert your equity into cash to meet your financial goals, whether those include retiring in style, making a down-payment on a new home or helping a family member.
If you’re looking for options to consolidate your debt, reverse mortgage may be a helpful option for you. However, in some situations, you can be denied a reverse mortgage. If you are still unsure of alternative options to securing this specific loan, after reading this article, consult a financial advisor to discuss your options.
- Forbes. Reverse Mortgages: How They Work and Who They’re Good For. https://www.forbes.com/advisor/mortgages/reverse-mortgages/
- US Department of Housing and Urban Development. How the HECM Program Works. https://www.hud.gov/program_offices/housing/sfh/hecm/hecmabou