bad credit

April 19, 2018 Bankruptcy No Comments

Reverse Loans and Bad Credit

In general having derogatory credit is less of an issue for being approved on a reverse loan than it would be on traditional financing.

The reverse loan applicant does undergo some “light” credit Underwriting to determine their residual income after all housing obligations are paid and this would also include any revolving or installment debts as well.

The underwriting process is referred to in the industry as the Financial Assessment and was put into place within the last few years, providing an overview of the borrowers financial capacity and willingness to continue making any on going payment obligations after the reverse loan has funded and closed.

FICO scores are not used to determine an individual eligibility for the loan, but if there are any late payments on an existing mortgage and other obligations, a letter of explanation must be provided along with the necessary documentation to support it.

But what if one had had a bankruptcy? Can they still be approved for the loan or not? The short answer is “yes”.

Chapter 7 Bankruptcies must be dismissed or discharged prior to closing the new loan. If it was dismissed over one year ago, no additional documentation is required.

But if it was less than one year, the borrower must provide a court order signed by the judge as proof of the discharge or dismissal along with the discharge schedule.

Chapter 13 Bankruptcies have a couple of options.

The borrower pays the bankruptcy in full at the close of Escrow. And obtain a payoff letter from the trustee.

The borrower must pay off any liens against the property and any federal debt.

See what my clients are saying!

The court must provide written permission signed by the judge indicating that the borrower does not need to pay off the bankruptcy to proceed with the reverse mortgage. This permission must specify that the mortgage may be an adjustable rate mortgage, if applicable.

Chapter 11 Bankruptcies are most prominently used by businesses and have similar guidelines as a Chapter 13 Bankruptcy.

This is a brief description about what the lending process is and what must take place in order to approve a reverse loan for a borrower who has had credit problems in the past. But do contact me if you have any questions.

April 19, 2016 Qualifying for a Mortgage, Reverse Mortgages No Comments

How Does Bad Credit Affect Getting a Reverse Loan?

Since the crash of the Stock Market and the housing industry 8 years ago, it has become much more difficult to qualify for a mortgage than it was in the past.

With the advent of new regulatory changes and rules affecting both industries, the impact on a potential borrower has been significant.

By “significant”, I am referring to the enormous amount of documentation a potential borrower must submit to the Lender who they are applying with for a new mortgage. A lot of people are very upset about the amount of paperwork and scrutiny they have to undergo in order to become approved for a mortgage.

But, these regulations and piles of documentation are not necessary ( There is now the Financial Assessment) for a senior to provide if they are applying for a Reverse mortgage. Because there are no payments on a Reverse loan, the applicant DOES NOT have to qualify using their FICO scores or Debt to Income Ratios.

(The Financial Assessment does require some bank statements or any statements showing cash reserves & verification that the borrower has made their property tax & Homeowners insurance payments on time for the previous 24 months. And if not, they might be required to have an Impound account set up to make sure that they are paid in the future.)

As a matter of fact, even if they have poor credit or a BK and their income isn’t very much, they will qualify for the FHA HECM Reverse loan. It’s just a matter of providing a letter of explanation for any derogatory credit.

I recently had a client who due to a very serious illness and the medical expenses associated with it, used up all of their credit cards to pay their mortgage payment and other monthly expenses and to cover what their insurance didn’t pay and eventually they had to file for a bankruptcy, plus they also owed money to the IRS.

They repaid the IRS, completed the bankruptcy and I was still able to have them approved for their Reverse mortgage and paid off the existing loan leaving them free of a monthly mortgage payment.

This is just one of many examples of how credit and income are irrelevant for qualifying for a Reverse loan.

And the BORROWER STILL OWNS THEIR PROPERTY. The bank NEVER takes it when they pass away, the estate goes to the heirs.