In the past, the eligibility requirements for a reverse mortgage were simpler:
- you had to have enough equity in your home (generally 50% or more),
- be at least a 62 year old homeowner who’s listed on title, and
- live in your home as your primary residence.
A recent change by the U.S. Department of Housing Urban Development (HUD) added an additional eligibility requirement called “Financial Assessment”.
What is Financial Assessment?
The purpose of Financial Assessmentis to evaluate that a borrower has the willingness and ability to meet their financial obligations.
The Financial Assessment review covers both a borrower’s history and future ability to continue to meet their financial obligations, which includes on-going property obligations once the reverse mortgage has closed such as property taxes, homeowners insurance, and homeowner association fees. This is done by reviewing a borrower’s credit and documented income sources such as Social Security, pensions and investments.
Through the Financial Assessment review, the lender may determine that a Life Expectancy Set-Aside (LESA) is required that will be used solely for payment of specific property charges, which are property taxes, homeowner’s insurance, and flood insurance (if applicable). The LESA will reduce the amount of loan proceeds that are available to the borrower for the duration of the loan.
Use our Reverse Mortgage Calculator or call 800-218-1415 to find out what the financial assessment may mean to you. You will receive a free, no obligation quote from a licensed loan officer.
Author: Pamela Rodriguez, LRM