The Reverse Mortgage program is probably the safest loan a retiree can get, and it just became even more secure. In an effort to make the HECM FHA Insured Reverse Mortgage product even safer for the long term, HUD will require all RM applicants to undergo a Financial Assessment to ascertain whether or not HUD deems them a high risk of default on their future property tax, homeowners insurance, HOA dues, and utility bills. This assessment will be required for all applicants that have not finished their FHA counseling before March 2nd 2015. This Financial Assessment or FA is twofold. It will assess an applicant’s willingness to pay these bills and their ability to pay these bills. Failing the Financial assessment does not stop an applicant from getting a Reverse Mortgage; it only requires that funds be set aside to cover tax, insurance and other payments for a certain number of years.
In assessing the Willingness to pay bills HUD will verify:
- All housing and installment debt 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.
In assessing the applicants Ability to pay bills they will assess an applicant’s residual income, their reserves (Checking/Savings/CD/IRA accounts) and weigh that against their annual payments on Property taxes, HOA dues, Homeowners Insurance, and utility bills. They want to verify that they these payments are less than 10% of their annual residual income and reserves. If their annualized payments is higher than 10% of their assessed residual income, then the result of the financial assessment will require impounds of these bills based on the age.
The older a person is the less money that is required to be set aside. In the end, HUD wants to ensure that a RM is a long term solution for retirees looking to protect their homes and the FA is a way to find those that would be in danger of losing their home at some future date due to non-payment of taxes, HOA dues, or insurance payments and create a plan that will ensure this will not happen to them.
If you would like to help someone close their Reverse Mortgage before the Financial Assessment takes effect please call or email us ( firstname.lastname@example.org ) immediately and we can discuss the best way of accomplishing that. See our Reverse Mortgage Calculator HERE.