How Do I Qualify for a Reverse Mortgage?

In 2015, HUD initiated new rules for qualifying prospective HECM borrowers.  It's called the Financial Assessment.  HUD is trying to limit the number of defaults for non-payment of property taxes and homeowner's insurance which is actually a borrower protection.

Financial Assessment - Reviewing credit history and property charge payment history. 

The lender is required by HUD to evaluate your financial fitness for a HECM loan. The lender will review your credit report and your payment history, but a minimum credit SCORE is not a qualifying factor.  There will also be an analysis of your real estate tax payment history.  The purpose of the financial assessment is to determine whether or not a HECM borrower has sufficient income to pay ongoing expenses on their home, mandatory reverse mortgage obligations such as property taxes, homeowner’s insurance, HOA fees, and other property charges. 

What does a lender look for? 

With reverse mortgages, underwriters look for stable income to support ongoing expenses on the home. Underwriters review employment, pensions, social security, and assets which can all be used to substantiate a stable income. Underwriters analyze if the borrower's income and assets are adequate enough to pay real estate taxes and homeowner's insurance payments throughout the life of the loan. Since the assessment is to the borrower's benefit, a financial assessment is a procedure that should be welcomed.

Lenders make the final decision on Financial Assessment.

After conducting a Financial Assessment, the lender will determine whether you have the financial ability to handle paying your taxes and homeowner's insurance on your own.  If not, a portion of proceeds from your closing will be placed into a set-aside account, and your taxes and homeowner's insurance will be paid by your HECM lender as these become due. This account is called a LESA, Life Expectancy Set Aside.  

Non-Borrowing Spouse:  

It used to be that if a borrower passed away and had a spouse who was under age 62 and not on the reverse mortgage, the spouse would have to vacate the home OR pay off the reverse mortgage.  

At the present time, even IF you have a spouse who is not 62 years of age, you can still apply for a reverse mortgage. By being listed on the HECM as a non-borrowing spouse, he or she will be able to remain in the home after your passing. 

However, the HECM line of credit and monthly proceeds would no longer be accessible to the non-borrowing spouse.  Speak to your reverse mortgage professional about these issues to determine if a Reverse mortgage is right for you.  Be certain that your spouse is an eligible non-borrower!

What happens to non-borrowers when a

HECM borrower passes away?

According to HUD, Housing and Urban Development, eligible non-borrowing spouses may continue to live in the mortgaged property after the death of the last remaining HECM borrower provided they meet all the established FHA requirements and as long as the HECM loan is not in default (i.e., failure to pay required property taxes or hazard insurance payments, failure to maintain the home in adequate condition, and failure to occupy the home as their primary residence). 

The requirements are covered below and at this link, click here: 

1. The non-borrowing spouse is named in the loan documents as a non-borrowing spouse.

2. The HECM cannot be in default (eligible to be called due and payable) for any reason other than the last borrower’s death, for example: failure to pay required property taxes or hazard insurance payments, failure to maintain the property according to FHA requirements); and 

3. The borrower and his or her spouse were either:

a. legally married at the time the HECM closed and remained married until the HECM borrower’s death.

b. engaged in a committed relationship akin to marriage but were legally prohibited from marrying before the closing of the HECM because of the gender of the borrower and non-borrowing spouse, if the spouses legally married before the death of the

borrower and remained married until the death of the borrowing spouse; and

4. The non-borrowing spouse lived in the property at loan closing and continues to live in the property as his or her principal residence.