What is the Reverse Mortgage Financial Assessment?
The Reverse Mortgage Financial Assessment is a crucial step in the reverse mortgage application process. It was introduced by the Federal Housing Administration (FHA) to ensure that borrowers have the financial capacity to meet their ongoing obligations, such as property taxes and homeowner's insurance, and still benefit from a reverse mortgage.
Key Components of the Assessment:
Credit History: Lenders will review your credit history to assess your financial responsibility. While a low credit score doesn't necessarily disqualify you, a history of late payments on taxes or insurance could raise concerns.
Income and Expenses: Lenders will evaluate your sources of income, including Social Security, pensions, or investments, as well as your monthly living expenses. This helps determine if you have enough income to cover ongoing costs.
Residual Income: The FHA sets a minimum residual income requirement to ensure you can afford your daily living expenses after accounting for your reverse mortgage obligations.
Set-Asides: If the financial assessment raises concerns about your ability to pay taxes and insurance, the lender may set aside a portion of your loan proceeds to cover these costs.
Why Does It Matter?
The Reverse Mortgage Financial Assessment is designed to protect both borrowers and lenders. By ensuring that borrowers have the financial means to meet their obligations, it reduces the risk of foreclosure and helps you maintain your home.
What If You Don't Meet the Requirements?
If the assessment reveals potential financial challenges, don't worry. You may still qualify for a reverse mortgage with the help of a Life Expectancy Set-Aside (LESA), which sets aside a portion of your loan proceeds to cover future expenses.