With the Financial Assessment date almost upon us, HUD has issued clarification on how this will affect those that don’t complete their counseling before April 27th 2015. In an effort to further protect those with reverse mortgages the financial assessment will use two methods to ensure that borrowers will be able to continue to make their property tax payments and hazard insurance payments throughout their retirement years. This is done by first assessing a borrower’s track record. To pass the willingness to pay test:
- All housing and installment debt must be paid on time for the last 12 months
- No more than two 30 day late payments on housing or installment debt in the last 24 months
- No 90 day lates or three 30 day lates on a single account.
- 12 months of current payments for Ch. 13 bankruptcy
- No Ch. 7 bankruptcy in last 2 years
- No credit is considered good credit.
- DISPUTED medical bills are not counted against the applicant.
The second way HUD will assess new reverse mortgage borrowers is to calculate their ability to pay:
The process will calculate real estate taxes, home insurance, flood insurance, HOA/PUD/Condo fees, income taxes, FICA, installment payments, alimony or child support, judgment payments and other monthly payments. Maintenance and utility expenses will be estimated based on multiplying the housing square footage by .14. For example, a home of 1,500 square feet is multiplied by .14 giving an estimated monthly expense of $210. The total monthly income from all sources is calculated. All monthly expenses are subtracted from total monthly income giving one a residual monthly income. Based on the household size and the area one lives in there is a minimum residual income threshold. If one is above the threshold, there is no required set aside for tax and insurance payments, if one is below the threshold there will be money set aside form the reverse mortgage to make the required payments for a specified period of time based on life expectancy.
With the financial assessment rules in place, borrowers will be able to breathe easy knowing that they have enough set aside to cover any housing expenses throughout their retirement. They can also rest easy knowing they have no monthly mortgage payments and if they qualify they can receive a lump sum payment, monthly income for life, or a Line of Credit that grows for them. Find out what a reverse mortgage will do for you HERE.