Interested in applying for a reverse mortgage in 2015? A new assessment is coming your way in Spring.
The Department of Housing and Urban Development (HUD) has issued an updated financial assessment requirement for reverse mortgage borrowers. Originally due to take effect on March 2, 2015, HUD has revised the deadline to 30-60 days from that date, with more detailed deadline information forthcoming.
That puts the new assessment start date sometime between April 1 and May 1. Update: The new effective date for complying with FHA’s financial assessment guidelines is April 27, the U.S. Department of Housing and Urban Development announced on February 27 (Mortgagee Letter 2015-06).
Despite this delay in the assessment, those interested in applying for a reverse mortgage should be informed of the assessment requirements.
In explaining the purpose of financial assessment, HUD writes: “The mortgagee must evaluate the mortgagor’s willingness and capacity to timely meet his or her financial obligations and to comply with the mortgage requirements.”
Standard reverse mortgage requirements include paying property taxes and homeowner’s insurance and keeping up home maintenance.
HUD states: “In conducting this financial assessment, mortgagees must take into consideration that some mortgagors seek a HECM due to financial difficulties, which may be reflected in the mortgagor’s credit report and/or property charge payment history. The mortgagee must also consider to what extent the proceeds of the HECM could provide a solution to any such financial difficulties.”
For borrowers who do not demonstrate their willingness to meet their loan obligations, life expectancy set-asides will be required. Where necessary, the set-aside would be drawn under the HECM and reserved for payment of property taxes and insurance by the lender, ensuring that those financial obligations are met. The dollar amount, to be calculated using a formula provided by FHA, is viewed as sufficient to assure the required payments can be met though the entire life span of the borrower.
To perform the assessment, HUD has provided a list of documents to be collected and submitted for all borrowers. “Financial Assessment Documentation” includes:
- credit history
- income verification
- asset verification
- property charge verification
- residual income analysis
- documentation of extenuating circumstances or compensating factors, and
- calculations for life expectancy and residual income shortfall set-asides
The purpose of the financial assessment is to create a safer loan product and to ensure that reverse mortgagees continue to meet their mortgage obligations.
If you have a question about qualifying for a reverse mortgage today, or how the financial assessment will impact your situation, call (800) 967-3575, write David Chee, or get started now and request a free quote today.
*This article has been updated to reflect the new effective date for assessment compliance, April 27 2015.
Many people spend months or years thinking about when to do a reverse mortgage. Many who have done a reverse mortgage wished they had done it much earlier when they realize how it has positively impacted their life. Without knowing the future of home prices, interest rates, cash needs, and your life expectancy, it is impossible to know when the right time to pull the trigger is. Interest rates are at historic lows, HUD will be requiring “financial assessment” of borrowers this year which will make qualifying for a reverse mortgage more restrictive. From a program offer perspective, now is a great time to consider a reverse mortgage.
There are numerous safeguards in today’s reverse mortgage programs that protect senior homeowners. “Most people don’t realize that the Home Equity Conversion Mortgage (HECM) was designed by Congress and the U. S. Department of Urban Development (HUD) specifically to help seniors enhance their retirement years. It is a HUD regulated and FHA insured program.” said David Chee, CPA.
A reverse mortgage is a loan that enables senior homeowners 62 or older to borrow against the equity in their home, without having to sell the home, give up title, or take on a new monthly mortgage payment. The money received can be used for any purpose. The loan amount depends on the borrower’s age, current interest rates, and the value of the home. A reverse mortgage does not have to be repaid until the borrower sells or moves out of the home permanently, and the repayment amount cannot exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or the borrower’s estate. A borrower’s home does not have to be owned free and
clear to qualify for a reverse mortgage.
The FHA maximum claim amount for HECM reverse mortgages has been $625,500 since 2009. It is scheduled to decrease to $417,000 on December 31, 2011 unless Congress votes to extend it. This means many older home owners in the Bay Area will receive substantially less money if they begin the reverse mortgage process next year. For example, a 75 year old homeowner with a home valued at $625,000 would now get approximately $433,000 from a reverse mortgage. On January 1st, that same $625,000 home will provide only $289,000 or $144,000 less.
If you are considering a reverse mortgage in the near future, it may make sense to start the process sooner than later. Interest rates are at historical lows and the scheduled lowering of the lending limit from $625,500 to $417,000 can mean significantly less money from your reverse mortgage if you wait until next year.
In most cases, there are no income or credit score requirements to qualify. You must be 62 or older. At a time when it may be difficult to qualify for a conventional loan, a reverse mortgage can be a great solution. If you would like a free customized quote on a reverse mortgage, please call David Chee, Branch Vice President and Certified Public Accountant at Security One Lending, 1-800-967-3575. NMLS ID#263222, DRE#01714617