Effective on April 27, 2015, The Department of HUD introduced a financial assessment requirement for all Reverse Mortgages applicants. Applicants now have to demonstrate they have the ability to meet their monthly expenses. This change introduces both the financial assessment standard to qualify and the LESA (Life Expectancy Set Aside) to help reduce the risk of defaults or foreclosures on homes with reverse mortgages.
The Financial Assessment Standard Looks at Cash flow and Credit.
- There is now a cash flow analysis that is required, Lenders now look at an applicant’s 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, while a couple will need $886 left over for living expenses per month.
- 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 homeowners insurance.
Reverse Mortgage LESA.
If it’s determined that the borrower does not meet the financial assessment standard, a LESA (Life Expectancy Set Aside) can be required. The LESA is used to set aside a portion of the reverse mortgage proceeds for future payments of property taxes and homeowner insurances for the homeowner. If theirs not enough equity in the home to cover the LESA, the applicant would need to contribute cash at closing to qualify.
Although a LESA can be required, we’ve found many applicants opt to dedicate a portion of their proceeds into the LESA. To learn more about qualifying for a reverse mortgage call (561) 203-6772 to speak with a reverse home loan professional.