Articles and Blogs

December 7^th 2021 - Philip Roe

Obtaining financing on a home can be a difficult endeavor. There are so many prerequisites that must be met before you ever see the first check. When it comes to reverse mortgages, which more Canadians are turning to, those prerequisites can seem daunting. And there is always the question of whether or not you can get a reverse mortgage with bad credit.

The good news is that, yes, you can get a reverse mortgage with bad credit. We will cover all that you need to know about reverse mortgages, how your credit comes into play, and any other questions that you may have.

What is a Reverse Mortgage?

Before we can worry about whether or not you can get a reverse mortgage with bad credit, it helps to know what a reverse mortgage is.

In Canada, you can take out a reverse mortgage to borrow against the equity in your home. This allows homeowners to get the money that they need without having to sell the home altogether. Reverse mortgages are also sometimes referred to as an “equity release.”

The limit for borrowing against the current value of your home is 55%, but there are some factors that can impact that amount. The first is the age and gender of anyone listed on the title of the home. Second, the lender can play a major factor. And last is the current appraisal value of your home.

Who can Qualify for a Reverse Mortgage?

Obtaining a reverse mortgage also comes down to a few basic prerequisites. The first is that you have to own the home in question, and it has to be your primary residence for at least six months of the year. The second is that any of the people listed on the title must be at least 55 years old.

This is all before any considerations about whether or not you can get a reverse mortgage with bad credit. Not only that, but the lender that you choose may ask you to get independent legal advice and ask for proof of that advice.

The lender will also take a few factors into consideration. Your age and the age of those on the title of your home will be first and foremost. The area that you live in will play a factor as well. And perhaps the most important is the condition of your home, the type of home, and the current appraised value.

Can I Get a Reverse Mortgage with Bad Credit?

There are plenty of advantages to taking out a reverse mortgage. The first is that you don’t have to have good credit to qualify. Most reverse mortgages are insured, allowing lenders to lend money based on the aforementioned factors even if they don’t have great credit.

Traditional mortgages are based on creditworthiness and income primarily. But since reverse mortgages are based on equity in the home, credit doesn’t come into play the way it normally would. That is a huge advantage when compared to traditional mortgages.

What Do I Need to Qualify?

So, the good news is that you can qualify for a reverse mortgage with bad credit. With that out of the way, what do you really need to qualify? There are four main considerations when it comes to reverse mortgages.

Taxes and Insurance. Homeowners looking to qualify for a reverse mortgage must be up to date on their insurance and taxes on the home. Should they fall behind on those two things during the life of the reverse mortgage, they could put the loan in default. Defaulting on a reverse mortgage could bring it due before the end of the term.

Equity. The most important aspect of qualifying for a reverse mortgage is that there must be equity in the home. That means that the home needs to be owned outright or the existing mortgage balance has to be paid off using the funds from the reverse mortgage. That means the total amount of the reverse mortgage will have to be less than 80% of the home’s value.

Residency. The applicant or applicants must make the home their primary residence. If the primary applicants move to a medical facility for more than 12 months, then they would be no longer eligible for the reverse mortgage and the entire balance would need to be paid in full.

Home Requirements. The type of home can prevent qualifying for a reverse mortgage. The home has to be single-family and has to have a permanent foundation. Without that permanent foundation, manufactured and mobile homes may not qualify. Talk to the lender to find out for certain.

Reverse Mortgages: Who Do I Talk To?

The first thing that you should do if you want to discuss a reverse mortgage is call Lotus Income. We are here to get you the most equity out of your home and put the most money into your pockets.

Reverse mortgages can seem like a complicated endeavor, so it is important to discuss all of your options first. We can run through the pros and cons of reverse mortgages and determine if it is the right fit for your needs.