There are two PERPETUAL requirements when owning a home:
- You must be able to maintain it.
- You must have the resources to pay the ever-increasing property taxes, insurance, and, where applicable, HOA dues.
These requirements apply to all homeowners, WITH OR WITHOUT A MORTGAGE.
The terms of a Reverse Mortgage are that a borrower must:
- Remain current on property taxes and homeowner's insurance, and HOA dues, where applicable
- Maintain the home inside and out
- Reside in the home at least 6 months and 1 day each year
Introducing Financial Assessment
Effective April 27, 2015, all lenders are required to perform a Financial Assessment. Its purpose is to determine whether a borrower is willing, and has the capacity, to meet his or her financial obligations in a timely manner, and to comply with the terms of a reverse mortgage loan, which includes capacity to pay property taxes and insurance and complete future maintenance.
Many borrowers seek a reverse mortgage due to financial difficulties, which are often reflected in a credit report or property payment history. Lenders then consider to what extent the proceeds of a reverse mortgage may provide a solution to these financial difficulties. In doing so, HUD has outlined evaluation requirements that determine eligibility, taking into consideration any extenuating circumstances, compensating factors, and the benefit of the loan.
How It Works
If the borrower meets the criteria for adequate income to meet future obligations, and demonstrates willingness to pay creditors, then she has passed the general financial assessment. If she does not, she may be required to have a set-aside from the loan amount that is held for the payment of taxes and insurance by the lender, much like an escrow account. This is called a LESA, or Life Expectancy Set-Aside.
Peace of Mind for Borrower and Lender
There are many people who could not have afforded to pay taxes and insurance, even without a mortgage. There are many who thought they could, and later, due to unforeseen circumstances, still lost their homes because they couldn't maintain them and pay those obligations.
Consider that a reverse mortgage can be a life-saving benefit, even if it is just in place to cover these obligations in the event things don't go as planned. Thus, a Reverse Mortgage, with a LESA, can be one of the best things to happen to retired homeowners.