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Can we use reverse mortgage proceeds to pay off debt?

Can we use the proceeds from a reverse mortgage to pay off debt and then refinance the reverse mortgage when our credit scores and debt-to-income ratios improve? We are having trouble qualifying for a traditional refinance due to low credit scores.

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

Using the proceeds from a reverse mortgage to pay down debt can provide significant financial benefits to borrowers. For example, you can eliminate your monthly mortgage payment and also use the money from a reverse mortgage to significantly reduce or eliminate other monthly debt. Additionally, your credit score is a less important qualification factor when you apply for a reverse mortgage as compared to a regular mortgage. So while you may be having trouble qualifying for a traditional refinance, you may be able to qualify for a reverse mortgage despite your credit challenges. You can refinance the reverse mortgage at any time in the future as long as you qualify for the new loan. In your case, paying down your debt should improve your debt-to-income ratio while also boosting your credit score which should put you in a better position to qualify for a new regular mortgage to refinance your reverse mortgage in one-to-two years.

If you have experienced credit challenges in the past, reverse mortgage lenders will likely require you to submit a letter that outlines the issues and how you have resolved them. Other reverse mortgage qualification requirements include: one borrower must be at least 62 years old, the borrower must live in the property being financed and the borrower must demonstrate the ability to pay for non-mortgage housing expenses such as property taxes, homeowners insurance and homeowners association (HOA) fees, if applicable.

We provide a comprehensive overview of reverse mortgages on FREEandCLEAR including how reverse mortgages work, key borrower questions and borrower qualification requirements.  We also review reverse mortgage pros and cons as well as key program terms borrowers should understand when evaluating if a reverse mortgage is right for them.

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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