Qualifying for a reverse mortgage is often easier than qualifying for a traditional mortgage. If you fail to qualify for a traditional mortgage but you meet the requirements of a reverse mortgage, you can take advantage of the benefits offered by the same. Let us find out how different it is to qualify for a traditional and a reverse mortgage.
Eligibility- Traditional versus reverse mortgage
Let us observe the difference between a traditional and reverse mortgage. When you are planning to take out a traditional mortgage, there are few factors that a lender will take into account prior to approving your mortgage application. These factors include the following –
- Income
You will be required to provide details of your income. This is usually done to assess your repayment capacity and how much financial obligation you will be able to take on.
- Employment
You need to have stable employment. You will be required to have a steady inflow of cash each month so that your chances of defaulting or falling behind on mortgage payments are minimized.
- Collateral
In order to take out a mortgage, you need to provide collateral that can act as a safety net for the lenders. Should you fail to make mortgage payments; the lender can foreclose on your property to recover the loss.
- Credit history
A ruined credit rating will prevent you from enjoying favorable rates on your mortgage. Following recession, lenders have become stringent in their lending habits. On the other hand, if you are able to maintain a good credit rating, you are likely to enjoy lower mortgage rates. And lower mortgage rates mean lower monthly mortgage payments.
- Down payment etc
It is important to save enough cash for down payment. This gives assurance to the lender that his investment is safe and involves less risk.
If you fail to qualify for a traditional mortgage, try out reverse mortgage provided you are eligible. The qualifying factors are quite different as compared to traditional mortgages.
What are the factors that help you qualify for reverse mortgage?
There are several factors that decide whether you are eligible for a reverse mortgage. They are as follows –
- Age
In case of reverse mortgage, you should be 62 years and above. This has been made mandatory as per norms laid down by the Department of Housing and Urban Development in the US.
- Credit history
Credit history doesn’t affect your eligibility for taking out a reverse mortgage. You can still qualify for a reverse mortgage if you are able to satisfy the other parameters.
- Equity in your property
You need to have sufficient equity in your property so that you qualify. Equity in your property should be enough to pay off your earlier debt obligation if any.
- Your income
Your income is not taken into account when you apply for reverse mortgage.
- Property type
In order to qualify for reverse mortgage, the house in which you are residing should be your primary residence.
It is evident that it is easier to qualify for reverse mortgage as compared to traditional mortgage. However, both have advantages and disadvantages and you need to weigh the pros and cons prior to settling for a mortgage.
