The financial requirements for the loan include the following:
• no income or credit qualifications are required of the borrower;
• no repayment as long as the property is the primary residence; and,
• closing costs may be financed in the mortgage.
As discussed, only the property is used for repayment. Since the borrower is not personally responsible, there is no need to determine whether he or she will be able to repay. This means that no one will be denied the loan or charged a higher interest rate because of bad credit, insufficient income, or excessive debt, as would happen with a standard mortgage. In fact, insufficient income to pay debts is a common reason to get a reverse mortgage loan.
Primary residence is a term without a precise meaning. Spending more than six months a year at the property is one test. Intent to occupy is another. Intent is determined by actions, such as the address used on one’s driver’s license, tax returns, and medical insurance forms.
Financing closing costs would decrease the amount that the borrower would receive in subsequent payments. For example, if a borrower was entitled to a $100,000 loan and financed $1,000 in closing costs, only $99,000 would be left, regardless of which payment method the buyer chose to receive.