In 2015, regulatory action and legislation were enacted to protect borrowers and make reverse mortgages sounder financial tools. All prospective borrowers are now required to undergo a financial assessment to qualify for these loans.
But even if an applicant has financial challenges, there may still be a chance of becoming eligible for a reverse mortgage. If the lender finds that a loan applicant does not have the adequate cash flow to uphold the mandatory obligations of the reverse mortgage, they may require what is known as a Life Expectancy Set Aside, or a “LESA,” for short.
What Is a Reverse Mortgage Financial Assessment?
During the reverse mortgage application process, a financial assessment determines if the applicant has the willingness and capacity to afford reverse mortgage obligations, including property taxes, homeowners insurance, and other property charges they might have.
What Are Life Expectancy Set Aside (LESA) Funds?
LESA funds are derived from the reverse mortgage loan proceeds used to pay for property charges and homeowner’s insurance for the expected remaining lifetime of the borrower. The borrower cannot access LESA funds since these are set aside to pay for necessary homeowner expenses.
Suppose a lender determines the applicant does not need a fully-funded LESA. In that case, it may establish what is known as a partially-funded LESA if the applicant is capable of managing a portion of what would have been required under a fully-funded LESA.
Even if a LESA is not required, the borrower may choose a LESA to help pay for ongoing property charges and have the lender set aside funds to pay property taxes and insurance. By setting up the LESA, the amount needed to satisfy these costs will be set aside from the available reverse mortgage loan proceeds.