Reverse Mortgage Qualifications & Parameters
If you are a senior homeowner with equity in your home, you may qualify for a reverse mortgage. The loan is based on a few simple things: age of the youngest borrower, the equity in your home (typically you need at least 50% equity), and interest rates. Here are the Reverse Mortgage requirements:
• All borrowers must be at least 62 years of age. There are some proprietary reverse mortgage products where 60 is the minimum age and some products age 55, but these are not available in all states).
• You must own your own home, condo, townhouse, or manufactured home and live in it as your primary residence for at least 6 months out of the year. Co-ops in New York state are now eligible for reverse mortgages.
• HUD-approved reverse mortgage counseling is required. HUD requires that you have reverse mortgage counseling on all reverse mortgage loans so that borrowers understand the financial responsibilities involved as well as the potential risks. Homeowners cannot be approved for a Home Equity Conversion Mortgage / HECM without reverse mortgage counseling. Once the counseling is completed, you will be issued a signed HECM Counseling Certificate by your HECM counselor which is required to begin the process. Counseling is also required on proprietary/jumbo reverse mortgages but is not called HECM counseling. Non-borrowing spouses must attend HECM counseling as well as anyone who is a party to the transaction such as an owner who plans to execute a quit-claim deed or the owner of a remainder interest in the property such as life estates or guardianships.
• All mortgages, liens, and judgments on the property will be paid off by the reverse mortgage.
• You must show by your income that you can continue to pay your real estate taxes, homeowner's insurance, flood insurance where required, and condo and HOA fees where applicable. A financial assessment by your lender determines your financial fitness and ability to pay monthly property charges and expenses. So although there are no minimum credit score or income requirements, you must show you have enough RI, residual income, to continue paying your real estate taxes, homeowner's insurance, and any fees associated with your home (flood insurance, condo fees, HOA fees, co-op fees, etc.)
• Acceptable home types: 1-4 unit single-family homes, attached or detached, condos, co-ops (NY state only), manufactured homes, some mixed use. For 1-4 family homes, borrower must live in one of the units.
HUD has designed the reverse mortgage with safeguards for borrowers. CLICK HERE
There are pros and cons to decisions we make in life. Reverse mortgage pros & cons, CLICK HERE
The FHA HECM is UNIQUE! Click the link to learn about the growing line of credit. CLICK HERE
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.
Everyone has questions when it comes to mortgages. And most senior homeowners considering the efficacy of a reverse mortgage will have questions.
You can learn more about the program by clicking the below link for FAQ-QUESTIONS PEOPLE ASK. You will learn when the program started, how much you can borrow, can you lose your home if you have a reverse mortgage, are your children responsible for paying back the loan, and can you deduct the interest from your taxes.
Questions? Call Advisors Mortgage! 888-843-9797 or 631-804-9044
What is a LESA? LESA, Life Expectancy Set Aside, implemented by HUD has made the HECM better so your taxes and insurance are on time!
Where required, a LESA sets aside some of the proceeds of the reverse mortgage for borrowers who do not pass a Financial Assessment and do not have sufficient funds to pay their property charges OR whose credit history reveals a poor mortgage payment history, poor real estate tax payment history, poor credit payment history.
HUD introduced the LESA to reduce the chances that borrowers would default on their HECM loan due to non-payment of property charges.
Since the introduction of the Financial Assessment and LESA, it has proven successful. There are some borrowers who request a LESA so they do not have to worry about paying property charges.
Set-aside funds for payment of property charges, a one-time contribution.
This one-time contribution to the fund is based on your life expectancy rather than ongoing deposits to the fund. The specified amount in your closing documents remains in the LESA account. Property charges are deducted from your LESA account as they are paid. Once these funds have been depleted (if you exceed your life expectancy), you are then responsible for paying all property charges.
It used to be that if a borrower had a spouse who was under age 62 and that borrower was not on the reverse mortgage and the borrower passed away, the spouse would have to vacate the home if they could not pay off the reverse mortgage. For this reason, we discouraged borrowers from taking out a reverse mortgage on their home if their spouse was under 62 years of age.
There has been a change in reverse mortgage parameters so that 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/she will be protected and be able to remain in the home after your passing.
However, if there is a HECM line of credit, it would no longer be accessible to the non-borrowing spouse, and any monthly proceeds would end. Speak to your reverse mortgage professional about these issues to see if a Reverse mortgage is still a viable option for you.
NOTE: Prior to obtaining a reverse mortgage, consult an attorney to obtain any necessary documents in existence such as will, life estate, power of attorney, marriage certificate (only as applicable) as these documents will be reviewed by an underwriter at the lender especially if there is a non-borrowing spouse.
What happens to non-borrowers when a
HECM borrower passes away?
According to HUD, Housing and Urban Development, 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 (such as failure to pay required property taxes or hazard insurance payments, failure to maintain the home in good condition, and failure to occupy the home as your primary residence
An eligible surviving, non-borrowing spouse may continue to live in the mortgaged property after the death of the last surviving HECM borrower, if the following conditions are met and continue to be met:
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.
It is required by HUD that you receive reverse mortgage counseling called HECM counseling by a HUD-approved and independent counselor. After the counseling session is completed (which can be done by phone), you will receive a HECM counseling certificate which is signed by the counselor and you.
Reverse mortgage counseling was initiated so that borrowers would fully understand the steps they are taking and offer possible alternatives. You can bring family or friends to the counseling session and anyone who will be affected by the reverse mortgage transaction such as those who are currently listed on title, non borrowers, etc.
WHEN YOU ARE READY TO MOVE FORWARD
Once you have made your decision to go forward with a reverse mortgage and where applicable, consult your attorney in case you need to obtain any necessary documents such as life estate, power of attorney, guardianship as these documents will need to be reviewed by an underwriter as part of your reverse mortgage application documents. Reverse mortgages, if properly understood, can be another tool for managing retirement income and personal spending. Never hesitate to ask questions. We are here to help.
Myths about reverse mortgage do exist, and there are plenty of them. You need accurate reverse mortgage information about the HECM program. Click below for reverse mortgage facts that will correct the misunderstandings.
ADVISORS MORTGAGE GROUP, LLC., WE TAILOR LOANS TO MEET YOUR NEEDS -Branch NMLS 1833015, 3265 Merrick Road, Wantagh, NY 11793 - Phone: 888-843-9797 or direct: 631-804-9044 - Licensing: CA: Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act; FL; GA Residential Mortgage Licensee; NJ: Licensed by the New Jersey Department of Banking and Insurance; Licensed Mortgage Banker –OH; PA; TX. www.nmlsconsumeraccess.org