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Consumer protections in recent years have made reverse mortgages safer for borrowers. With tighter underwriting standards in place, reverse mortgage applicants are more thoroughly vetted to ensure they have the ability to safely and successfully tap into their home equity.
As part of the application process, all prospective reverse mortgage borrowers will be subject to a Financial Assessment to determine if they will be able to afford the ongoing property charges. In the past, reverse mortgage lenders were not required to complete a credit check, but under today’s rules, a credit check is now part of the process.
Similar to the qualification process for a conventional “forward” mortgage, a reverse mortgage lender will consider various aspects of an applicant’s financial history. This includes verifying credit history, previous borrowing activities, property payment history, sources of income as well as other income-producing assets, such as 401(k) plans or other retirement investment accounts.
Generally speaking, the reverse mortgage credit check is similar to most forward loans. The lender will pull the prospective borrower’s credit history based on personal information including his or her Social Security number.
The ultimate goal of the Financial Assessment is to analyze the financial situation of a prospective borrower in an effort to determine whether the applicant has the willingness and ability to continue paying mandatory obligations such as property taxes, homeowners insurance, homeowners association dues, property maintenance and any other property charges.*
In addition to looking at credit history, lenders need to see how much residual income is left over after accounting for all other living expenses. If a lender determines that the applicant’s residual income falls short, this doesn’t mean that the applicant is automatically disqualified from getting the reverse mortgage.
Instead, the lender may establish what is known as a Life Expectancy Set-Aside (LESA). The LESA is basically 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 you are interested in how to qualify for a reverse mortgage and would like to learn more, please contact a licensed, Finance of America Reverse mortgage professional today.
*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.