What Is a Reverse Mortgage Financial Assessmentꦦ?

A reverse mortgage financial assessment is a review of the borrower’s credit history, employment history, debts, and income during the reverse mortgage application process. The current reverse mortgage financial assessment requirement became effective in 2015. During the reverse mortgage financial assessment, lenders examine all of the borrower’s sources of income, such as Social Security, pensions and other retirement accounts, and investments.꧅

The assessment was introduced after years of problems with borrowers being unable to afford to stay current on their property tax and 澳洲幸运5官方开奖结果体彩网:homeowners insurance bills. As a result, borrowers were losing their homes to 澳洲幸运5官方开奖结果体彩网:foreclosure, and lenders were filing insurance claims with the 澳洲幸运5官方🌱开奖结果体彩网:Federal Housing Administration (FHA) to cove💮r their losses on these loans. The rev🤡erse mortgage financial assessment is intended to prevent this problem from occurring.

How a Reverse Mortgage Financial Asses💖sment W♒orks

A 澳洲幸运5官方开奖结果体彩网:reverse mortgage doesn’t require the borrower to make monthly mortgage payments 澳洲幸运5官方开奖结果体彩网:aܫs with a traditional, o𒀰r forward, mortgage; instead, the borrower receives a monthly payment from the lender. Also, unlike a traditional mortgage, a reverse mortgage doesn't require the borrower to qualify based on their 澳洲幸运5官方开奖结果体彩网:credit score and current income. Instead, reverse mortgage approval is based on the borrower’s age, the loan’s interest rate, having a small or zero mortgage balance, not being in debt to the federal government, and the property’s physical condition and 澳洲幸运5官方开奖结果体彩网:appraised value.

A reverse mortgage is available only to people age 62 or older. Such people may no longer be working and have limited income from Social Security, a pension, an 澳洲幸运5官方开奖结果体彩网:employer-sponsored ret❀irement account, or an 澳洲幸运5官方开奖结果体🎃彩网:individual retirement account (IRA). The purpose of the financial assessment is to make sure that the borrower can afford ongoing homeowners insurance and property tax payments on that limited income. Borrowers must provide certain documents, such as tax returns and bank account statements, as part of the process.

A financial assessment that reveals insufficient income or assets or a history of paying bills late doesn’t necessarily mean that the borrower will be denied a reverse mortgage. For example, if the 澳洲幸运5官方开奖结果体彩网:credit check reveals past problems in paying bills on time, the borrower will be given an opportunity to explain. If a pattern of credit problems emerges, the mortgage lender will ultimately determine if the credit problems were due to extenuating circumstances.

Life Expectancy Set-Aside

If the financial assessment reveals problems, the lender may require the borrower to establish what is known as a life expectancy set-aside (LESA). This is a type of escrow account funded from the borrower’s reverse mortgage proceeds.

The assessment determines the amount of money the borrower must set aside to pay property taxes, insurance, and other required charges. The amount will reduce the loan proceeds available to the borrower. However, not all borrowers will have these ongoing costs—such as 澳洲幸运5官方开奖结果体彩网:flood insurance, 澳洲幸运5官方开奖结果体彩网:homeowners association fees, and mortgage servicing fees—for the expected duration of their loan.

The Bottom Line

A reverse mortgage financial assessment reviews a potential borrower’s financial situation, including credit history, employment history, debts, and income, to make sure that the borrower can afford to pay the ongoing costs of maintaining their property while receiv൩ing reverse mortgage payments.🍬