Reverse Mortgage Financial Assessment
Effective for all case numbers issued on or after April 27, 2015, HUD introduced a financial assessment requirement for Reverse Mortgages. Reverse Mortgage borrowers now have to demonstrate that they have the ability to handle their expenses through out the life of the loan.
There is now an income and credit requirement to qualify for a Reverse Mortgage. Although this will help reduce the amount of defaults on Reverse Mortgages, it will also disqualify some seniors from the product.
There are two components to this new Financial Assessment standard
- There is now cash flow analysis that is required. Lenders now look at monthly income vs. monthly expenses. They look at factors such as monthly property taxes, homeowner’s insurance, utilities, and other revolving expenses. After the financial assessment calculations are made, they are looking to see how much disposable income is left. A single borrower will need at least $529 left over for living expenses, and $886 for a couple.
- There is also a derogatory credit standard. Lenders now look to see if the borrower has demonstrated a pattern of positive payment history for revolving credit, property taxes and insurance.
If it is determined that the borrower doesn’t pass the financial assessment, the lender can set up an escrow account for future property taxes, home owner’s insurance and any HOA or Condo dues as required. This escrow is known as a (LESA) Life Expectancy Set Aside. This LESA is set up to insure that the borrower has all the available funds to continue living in the home.
Disclaimer:(1)Loan proceeds are paid tax free; consult your tax advisor. (2) If you qualify and your loan is approved, a Reverse Mortgage must pay off your existing mortgage(s). With a Reverse Mortgage, no monthly mortgage payment is required. Borrowers are responsible for paying property taxes and homeowner’s insurance (which may be substantial). We do not establish an escrow account for disbursements of these payments. Borrowers must also occupy home as primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan must be paid off when the last borrower or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, or does not comply with the loan terms. Reverse mortgages are first and second mortgage loans. These materials are not from HUD or FHA and were not approved by HUD or a government agency.