Can You Get a Reverse Mortgage With Bad Credit? Nobody Is Grading You

Somebody Already Told You No. They Were Answering a Different Question.

You’ve owned this house for decades. You know which window sticks, which branch goes first in a windstorm, and roughly what the roof has left in it. The mortgage is gone, or nearly gone, and the equity in those walls is the largest thing you own.

Then somebody — a bank, a neighbor who’s good with money, an adult child holding a phone — looked at your credit and told you that door is closed.

They answered a question nobody asked.

Getting a reverse mortgage with bad credit isn’t the contradiction it sounds like, and the reason isn’t leniency. It’s that the number they were looking at isn’t part of the test. What replaces it is a review with a dull federal name, and how it handles a rough patch is the most useful thing you can know before you pick up the phone.

Think of a utility company deciding whether a new customer leaves a deposit. Nobody’s refusing to turn the power on. They’re deciding how much of your own money sits in reserve first (and yes, we’re coming back to that, because it’s the part that costs you something).

The Number That Isn’t in the File

A HECM — a Home Equity Conversion Mortgage, the FHA-insured reverse mortgage that makes up nearly all of them — runs on HUD’s Handbook 4000.1, the consolidated rulebook every FHA lender in the country underwrites from. In the reverse-mortgage section, HUD spends a paragraph defining the Minimum Decision Credit Score, the middle-of-three number every ordinary mortgage program lives or dies by.

Then it prints this:

“There is no MDCS for a HECM. Credit scores are not a criterion for processing or evaluating a HECM.”

Not “there’s no minimum.” Not a criterion. And a few hundred pages on, HUD closes the obvious loophole: a lender “must not use FHA’s Technology Open To Approved Lenders (TOTAL) Mortgage Scorecard to perform the financial assessment for HECMs.” TOTAL is FHA’s automated underwriting engine, the thing that scores an ordinary loan in seconds. It’s forbidden here. A person reads your file, or nobody does (which is why the score thresholds that rule a regular mortgage have no equivalent on this page).

What HUD requires instead is age and occupancy: “All Borrowers must be at least 62 years of age as of the Closing Date”, the home has to be where you actually live, and — worth reading twice if you’ve been feeling old about this — “There is no maximum age limit for a Borrower.”

So the score is out. Something is definitely in.

What They Read Instead

It’s called the Financial Assessment: an underwriter’s evaluation of your “willingness and capacity to meet their financial obligations in a timely manner”, and of whether the loan “will be a sustainable solution” to your circumstances. Two halves. Willingness is your record, capacity is your budget, and most of the confusion about credit lives in the first half.

For willingness, HUD publishes the bar plainly. An underwriter may treat your history as acceptable if you’ve “made all housing and installment debt payments on time for the previous 12 months and has no more than two 30-Day late Mortgage Payments or installment payments in the previous 24 months” — installment debt being anything on a fixed schedule that ends, like a car loan. On revolving accounts, meaning credit cards, the disqualifying trouble is defined too: more than 90 days past due, or three or more instances past 60.

Read those for what they are. It’s attendance, not grades. A thin file doesn’t sink you — HUD allows that a borrower with no traditional credit report “may be deemed to have an acceptable credit history.” A collection from 2019 isn’t a verdict. And the handbook says something I’ve never seen another underwriting rule say out loud:

“The Mortgagee must take into consideration that some Borrowers seek a HECM due to financial difficulties, which may be reflected on the Borrower’s credit report.”

HUD is instructing the lender to notice that the reason you’re applying may be the reason your credit looks the way it does (which is, quietly, one of the more humane sentences in federal mortgage policy).

The Twenty-Four Months Nobody Thinks About

This is where people who are sure they’ll pass get surprised.

Alongside your credit, the lender reviews your property charge payment history, and HUD sets the window: the Mortgagee “must analyze each applicable Property Charge for the preceding 24 months from the time of loan application, except for Hazard and Flood Insurance.” Two years, verified from the taxing authority or equivalent proof, not taken on your word.

Then there’s the list of what counts as a Property Charge, which grows every time you think it’s finished. Property taxes, obviously. Hazard insurance, and flood insurance where it applies. Ground rents. Condominium fees. Planned Unit Development fees and Homeowners’ Association fees — and if you just sat up straight, good, because that’s the one that catches people. And finally “other special assessments that may be levied by municipalities or state law”, which is HUD’s way of writing and anything else along those lines.

The HOA line is the quiet Utah problem. Plenty of homes from Draper to Farmington sit in a PUD or an HOA, the dues feel optional next to a tax bill, and the standard is unforgiving: your history is satisfactory when “all property taxes, HOA, condominium, and PUD fees for all owned real estate are current and there were no property charge delinquencies in the previous 24 months.” All owned real estate. The cabin counts (nobody warns anyone about the cabin).

One to plan around rather than fear: if hazard or flood coverage wasn’t in place over the previous 12 months, you don’t fail — you buy coverage and prepay a year of it at or before closing. That’s a to-do, not a verdict.

When the Record Isn’t Clean, There Are Two Doors

Say those twenty-four months aren’t clean. This is the part every competing page skips, and it’s the whole answer.

The underwriter can’t stop at late. They have to decide why, and HUD gives them three buckets: a “disregard for financial obligations,” an “inability to manage debt,” or Extenuating Circumstances.

That third one is a defined term with a real door behind it — the factors a lender may cite when your history doesn’t meet the standard. HUD’s examples read like the last five years of anyone’s life: “loss of income due to the death or divorce of a spouse that directly resulted in late payment of obligations”, unemployment or reduced hours, emergency medical treatment or hospitalization, emergency repairs insurance wouldn’t cover.

It isn’t a sob story, though. It’s a documentation test with four parts, and knowing them is worth more than any tip on this page. The paperwork has to show the connection between the event and “the measurable impact of the occurrence(s) on the Borrower’s finances”; that nothing you did made it worse; the likelihood that it won’t recur, where the lender weighs what this loan itself changes; and that you have some cushion outside the HECM. A letter about the year your wife was sick, with hospital dates and bank statements attached, checks all four. A letter saying it was a hard year checks none (the difference is attachments, and that’s the whole difference).

If the record is rough and the circumstances can’t be documented, here’s the sentence the rest of the internet owes you:

“…no Extenuating Circumstances can be documented, the Mortgagee must, at a minimum, require a Fully Funded LESA.”

Must require. Not may decline. The consequence of a bad record is a set-aside — the deposit, in our utility company — not a closed door.

What a Set-Aside Actually Costs You

Now the honest part, because a set-aside isn’t free and any page implying otherwise is doing you no favors.

A Life Expectancy Set-Aside — LESA, and everyone says lee-sa — is “a portion of the Borrower’s Principal Limit that is designated for payment of property taxes,” insurance included, for the estimated remainder of your life expectancy. Your Principal Limit is the pot: the maximum proceeds available to you, set by your age, your home’s value and HUD’s own math. The set-aside is carved out of that pot. Nobody keeps it and every dollar goes to your own bills — but it isn’t available for anything else, so what you can take as cash, as a line of credit or as monthly money is smaller by the size of the carve-out. How much smaller turns on your age, your home and your bills, which makes it a real quote rather than a magazine number (any page handing you a figure for it is guessing).

With a Fully Funded LESA, “the Mortgagee makes payments directly to the billing agency” — the county gets paid, the insurer gets paid, and you’re out of the loop by design. It does the job your old escrow account used to do (HUD insists a LESA isn’t one, and the handbook says LESA funds cannot be held in an escrow account — but that’s the shape of it). If instead your record is fine and it’s your monthly numbers that fall short of HUD’s Residual Income standard, meaning what’s left after your expenses, the lender must require a Partially Funded LESA, where the money comes to you and you are the one “responsible for the remaining amounts owed and delivering the full payment to the billing agency.” Keep the two straight: Extenuating Circumstances answer a history problem. Compensating Factors answer an income problem.

And the qualifier I’d rather you hear from us than discover late. A set-aside solves a payment-history problem, not a budget problem: where the charges are large enough that you’d “still fall significantly short of the Residual Income standard”, HUD says approval “even with a Fully Funded LESA, may not represent a sustainable solution for the Borrower’s financial circumstances.” A rough credit record isn’t what stops a HECM. A house you can’t afford to keep is. Those are different sentences, and whether the timing is right for you at all deserves both.

What Qualifying Signs You Up For

Getting approved is where the obligations start, not where they end. A reverse mortgage takes away the monthly mortgage payment. It’s still a loan, and three things come with it.

It gets repaid. Nothing is due while you live there. The balance doesn’t go away, though. HUD’s servicing rules, in the same handbook, make a HECM due when “no surviving Borrower maintains the Property as their Principal Residence”, when the home is signed over and no borrower keeps title, or when “an obligation of the Borrower under the HECM is not fulfilled.” That last condition is the one this whole page is about.

The bills stay yours. Property taxes, insurance and the HOA dues from earlier all remain your responsibility for as long as the loan is open. That’s still true with a set-aside. When a lender requires a Fully Funded LESA, HUD makes it tell you that the projection behind it “may be insufficient to cover LESA charges for the full length of that specified amount of time”. It also has to tell you that “the Borrower is responsible for the payment of all Property Charges, including the LESA charges, over the life of the HECM when funds are insufficient or the balance of the LESA is zero.” The deposit can run out. The obligation doesn’t.

So does the house. Upkeep is yours too. When a servicer learns the property is deteriorating, HUD has it notify you and give you a window to start repairs. If the work never starts or stalls out, “the Mortgagee must proceed in accordance with Due and Payable guidance.” A leaking roof is a maintenance problem on any house. On this one, it’s also a loan term (nobody puts that on the brochure).

And the home is what’s at stake. None of this happens without warning. If there isn’t enough left in your available proceeds to cover an unpaid tax or insurance bill, the lender has to “promptly notify the Borrower” that not paying will make the loan due. If a loan that has been called due isn’t paid off and the default isn’t cured, HUD’s rule is that the lender “must commence foreclosure”. Put plainly: A reverse mortgage is a loan that has to be repaid. You stay responsible for property taxes, homeowners insurance and upkeep on the home, and if those aren’t kept up, you can lose the home.

None of that changes the argument above. A rough record still leads to a set-aside, not a decline. But after can I qualify comes can I keep this up, and we’d rather answer that one with you before the file goes in than after.

Two Utah Details Worth Raising Before You Call

First, the deferral. HUD’s expense rules carry a carve-out most people never hear about: “Where a Borrower is participating in a Real Estate Tax Deferral Program, such taxes may be excluded from the expense analysis.” Documentation goes in the file. Utah runs property-tax relief for older homeowners — deferral and abatement both, through your county, with the age and income tests laid out in the Utah State Tax Commission’s Publication 36. Those thresholds move, so we’ll read the current ones with you rather than quote you last year’s. Being in one of those programs can change how your file is analyzed instead of counting against you.

Second, the order of operations. HUD-approved counseling comes before the loan, the lender you choose applies these rules with real variation, and the underwriter “must evaluate the totality of the Borrower’s circumstances”. Totality means your letter and your documents are admissible — useful only if you’ve assembled them before the file goes in. Anyone can pull two years of tax receipts and HOA statements in an afternoon; almost nobody does it before the first phone call, and it’s the cheapest advantage you have. The full step-by-step walkthrough takes the rest of the process in order.

Why Nobody Told You This

I’ll say the uncomfortable part, since it belongs to us.

Our industry answers this question with four words — there’s no minimum score — and stops, because it’s true, it sounds generous, and it ends the conversation. What it leaves out is the mechanism: that the review is about your bill-paying, that HOA dues are in it, that two years is the window, that a documented hard year is an argument you’re allowed to make, and that the usual consequence of a rough record is a reserve rather than a rejection.

So a seventy-four-year-old hears an easy yes, gets a document request nobody warned her about, and reads it as the rejection she half expected. Or she hears a lazy no from someone who never looked, and never asks again. The cost of that shortcut isn’t an argument on the internet. It’s a woman struggling to keep a house she’s sitting on the answer to.

Nobody should be talked out of their own home equity by a number the federal rulebook says out loud it doesn’t use.

Your Clear Path Starts With the Actual File

If someone told you your credit rules this out, call us before you believe them. We’ll walk the last two years with you — taxes, insurance, the HOA statements everybody forgets — tell you which of the two tests you’re in, and if a set-aside looks likely, say so up front so it’s part of the plan instead of a surprise in week four. You’d be in good company: Utah homeowners clear a mortgage payment this way every month of the year.

That’s the job as we see it. You’ll never wonder where your loan stands, because we tell you before you have to ask. You’ll get it in plain English, with no confusing mortgage jargon between you and your own decision. And because we’re brokers, we shop hundreds of lenders to find the best rate, with some of the lowest fees in Utah — which matters more than usual here, since lenders read an explanation letter with real variation in care.

A deposit was never a rejection. Let’s go read your file the way HUD actually reads it.

ClearPath Utah Mortgage · (801) 891-1846 · [email protected]
10168 South 2505 East, Sandy, UT 84092