Many retirees dream of moving closer to family or finding a home that better fits their lifestyle. But, for those living on social security and a pension, qualifying for a traditional home loan can feel nearly impossible, even if they have excellent credit and plenty of cash for a large down payment.

I recently spoke with Jaxzann Rigggs, owner of The Mortgage Network. She recounted a story about a couple that she had recently helped… Here is their story.

Jack and Diane were living in Pueblo and wanted to move closer to their children in Denver. They had lived in their home for twenty years and had built substantial equity in the home. Excited about the prospect of starting a new chapter closer to their loved ones, and after putting their Pueblo property on the market, they set out to find their next home. They scoured listings, attended open houses, and eventually came upon the perfect home.

Despite having EXCELLENT credit scores and their ability to make a substantial down payment on the new property, their bank declined their loan application.

The percentage of monthly income that they would be spending for the principal, interest, tax, and insurance (PITI) payment on the new loan, pushed their “debt to income” ratio too high to qualify for a traditional conventional “forward mortgage”.

FNMA and FHLMC require that borrowers spend not more than 45% of their gross monthly income on housing and all other consumer liabilities paid each month. A forward mortgage is what most people think of when they hear “home loan” but for retirees who no longer have a paycheck, qualifying can be challenging.

Even if they have significant assets, lenders may not count them fully unless they are converted to monthly income under certain formulas.

While their application for a traditional mortgage was declined, they were quickly approved for a Reverse for Purchase Mortgage, which allowed them to purchase their new Denver home.

Unlike a forward mortgage, a reverse mortgage flips the equation. Also referred to as a HECM (Home Equity Conversion) mortgage for purchase, the loan doesn’t require monthly principal and interest payments. Instead, the loan is repaid when the borrower sells the home, moves out permanently or passes away.

As a result, the qualifying process is less about income and more about ensuring that the borrower has sufficient equity and resources to cover property expenses like taxes, insurance, and HOA dues if applicable. If, at the time of their death, there is equity remaining in the home, the heirs sell the home and retain the profits.

If the loan payoff is greater than the value of the home, the heirs simply transfer the title to the home to The Federal Housing Administration (FHA). The loan is a “non-recourse” loan, meaning that the heirs have no liability for any deficiencies on the loan.

Benefits of a Reverse Mortgage for Purchase:

• Easier Qualification – Income and employment requirements are significantly more flexible than with forward mortgages.
• No Monthly Mortgage Payments – Borrowers are not required to make monthly principal and interest payments, preserving cash flow while reducing financial stress.
• Leverage Home Equity Wisely – Many retirees have much of their wealth tied up in home equity. A reverse mortgage allows them to convert that equity into a more suitable home without draining other retirement assets.

If at least one borrow is is 62 years or older, and you are interested in or have questions about refinancing into a reverse mortgage or utilizing a reverse mortgage for purchase so that YOU can eliminate monthly mortgage payments, reach out to your Mortgage Loan Specialist.

Need a Mortgage Loan Specialist? Call our office at (303) 394-2121 anytime.