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Under new rules that took effect in 2015, reverse mortgages now require all prospective borrowers to undergo a Financial Assessment in order 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.
For all prospective borrowers, a reverse mortgage lender will conduct a financial assessment to determine whether the applicant has the willingness and capacity to afford reverse mortgage obligations including property taxes, homeowners insurance, and other property charges they might have.*
If the lender finds that a loan applicant does not have 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.
Think of the LESA as a pool of funds which are derived from the reverse mortgage loan proceeds that will be used to pay for property charges and homeowner’s insurance for the expected remaining lifetime of the borrower. (The borrower cannot access fully-funded LESA funds.)
If a lender determines the applicant does not need a fully-funded LESA, 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 for the payment of 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.
If you are considering taking out a reverse mortgage and would like to know more about qualifying under these updated borrower safety standards, please contact a Finance of America Reverse mortgage professional today. We are here to help educate and answer your questions.
* The borrower meets all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.