Reverse Mortgage Financial Assessment Definition

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Reverse Mortgage Financial Assessment Definition

What Is a Reverse Mortgage Financial Assessment?

During the reverse mortgage application process, a financial evaluation of the borrower’s income, obligations, and job history is performed. The obligation for the current reverse mortgage financial evaluation went into force in 2015.

Lenders look at all of the borrower’s income sources, including Social Security, pensions, other retirement accounts, and investments, during the reverse mortgage financial evaluation. It was developed as a result of years of issues with borrowers not being able to pay their property taxes and homeowners insurance premiums on time.

Due to this, homeowners were facing foreclosure and lenders were turning to the Federal Housing Administration (FHA) to file insurance claims in order to recover their losses on these loans. The financial examination of reverse mortgages is designed to avoid this issue.

Key Takeaways

  • During the reverse mortgage application process, a financial evaluation of the borrower’s income, obligations, and job history is performed.
  • Lenders look at all of the borrower’s income sources, including Social Security, pensions, other retirement accounts, and investments, during the reverse mortgage financial evaluation.
  • The objective of the financial evaluation is to shield borrowers from losing their houses to foreclosure if they are unable to pay their mortgages, homeowners insurance, and property taxes on time.

How a Reverse Mortgage Financial Assessment Works

In contrast to a standard, or forward, mortgage, a reverse mortgage allows the borrower to receive monthly payments from the lender rather of having to make mortgage payments on a regular basis. Additionally, unlike a conventional mortgage, a reverse mortgage does not need the borrower to meet eligibility requirements based on current income and credit score. Instead, the age of the borrower, the interest rate of the loan, the loan’s modest or zero mortgage amount, the borrower’s lack of federal debt, the property’s physical condition and assessed worth, as well as the loan’s interest rate all play a role in a reverse mortgage’s approval.

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Only those 62 years of age and above are eligible for a reverse mortgage. These folks could not be employed anymore and rely on Social Security, a pension, an employer-sponsored retirement account, or an individual retirement account for their little income (IRA).The financial assessment’s goal is to determine if the borrower’s restricted income will allow them to continue paying their property taxes and homeowners insurance. As part of the procedure, borrowers are required to provide a number of papers, including tax returns and bank account statements.

Even if a borrower’s financial evaluation indicates inadequate assets or income or a history of making late payments on bills, a reverse mortgage may still be approved for them. For instance, the borrower will be given the chance to explain if the credit check finds prior issues with making bill payments on time. The lender will finally decide whether the credit issues were brought on by mitigating circumstances if a pattern of credit issues develops.

It is forbidden to discriminate in mortgage financing. There are actions you may take if you believe you have experienced discrimination based on your race, color, religion, sex, age, national origin, family situation, handicap, marital status, sexual orientation, source of income, or gender identity. One such procedure is to submit a report to the Department of Housing and Urban Development (HUD) or the Consumer Financial Protection Bureau (CFPB) (HUD).

Life Expectancy Set-Aside

The lender may demand that the borrower put up a life expectancy set-aside if the financial evaluation shows issues. This particular escrow account is financed by the revenues of the borrower’s reverse mortgage.

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The assessment establishes the sum that the borrower is expected to put aside for the payment of property taxes, insurance, and other necessary fees. The sum will lower the borrower’s available loan proceeds. Ongoing expenses like flood insurance, homeowners association dues, and mortgage servicing fees won’t be incurred by all borrowers over the anticipated length of their loan, however.

What is a reverse mortgage financial assessment?

In order to determine whether a potential borrower can afford to pay the ongoing costs of maintaining their property while receiving reverse mortgage payments, a reverse mortgage financial assessment examines the borrower’s financial situation, including credit history, employment history, debts, and income.

What is the reason for the reverse mortgage financial assessment?

Too many borrowers of reverse mortgages discovered that they were unable to pay their continuing homeowners insurance and property tax obligations. Due to this, lenders were facing an overwhelming number of house foreclosures. The evaluation was developed to address the issue.

Does a bad credit history prevent you from getting a reverse mortgage?

No, not always. Extenuating conditions that led to debts will be taken into consideration in the financial evaluation, but you must be ready to provide a strong argument during the assessment.

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