Credit and Income
Many people falsely believe that their income or credit situation will have an impact on their ability to qualify for a reverse mortgage. This is one of the major differences between conventional and reverse mortgages. With a reverse mortgage, your credit and income is not used for qualification purposes because there are no regular payments required on a reverse mortgage. Using credit and income to qualify the loan is no longer necessary as both these qualifiers are meant to gage the ability and willingness to pay a regular monthly mortgage payment.
While a past bankruptcy won’t prevent a borrower from getting a reverse mortgage, the bankruptcy courts do have to approve any financing being performed by a borrower currently in a bankruptcy. As a result, a borrower who has filed for a bankruptcy which is not discharged or dismissed will need to work with their attorney to get court authorization for the reverse mortgage or wait until the bankruptcy is discharged. A reverse mortgage may also be used to pay off chapter 13 bankruptcies early. This option requires coordination with your loan advisor and bankruptcy attorney and is worth consideration for seniors currently in a chapter 13 bankruptcy.
While income is not used to qualify for a reverse mortgage, a reverse mortgage may be used to supplement income using a modified payment option. This option allows you to receive monthly payments from the lender. The modified payments are non taxable and typically do not affect social security and Medicare benefits because the money is borrowed against your home, and is not earned income.
Some seniors worry about the effects a reverse mortgage has on capital gains taxes. Capital gains taxes are assessed on the appreciation of the home at the time the home is sold. The tax is assessed on the sales price of the home, less any funds used to purchase, maintain, and renovate the home. Mortgage transactions are not part of the capital gains tax calculations. However, someone considering selling their home rather vs. doing a reverse mortgage may want to consider that selling the home may trigger a capital gains tax if a new home of greater value is not purchased in its place, where a reverse mortgage will not result in any capital gains assessment at all.
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