UPDATE: Financial Assessment has been postponed until 3rd quarter 2012
Borrowers interested in taking out a Home Equity Conversion Mortgage (HECM), or government-insured reverse mortgage, should be aware that they may face a new financial assessment that will look at their monthly income & cash flow to determine whether or not they are eligible for a loan.
Lenders have been implementing some income assessments after the National Reverse Mortgage Lenders Association recommended underwriting guidelines to reduce the risk of tax and insurance default and increase quality and confidence in the government-insured HECM.
NRMLA’s guidelines advise lenders to determine a prospective borrower’s capacity to pay ongoing property charges, including property tax and homeowners insurance, which borrowers are responsible for paying for the duration of their loan.
Assessing capacity is done by taking an applicant’s gross monthly income from all sources, including Social Security or the income they would receive from a reverse mortgage, and subtracting monthly property charges.
Income requirements will differ from lender to lender, and not every lender will necessarily follow the same underwriting guidelines.
For example, one of the largest reverse mortgage lenders, released its own financial assessment, modeling its income requirements on the VA Residual Income Table, meaning they depend on where an applicant is geographically located.
This lender may require applicants in the South or Midwest regions to have a minimum residual cash flow of $886 a month, while those in the North must have at least a $906 cash flow each month, going up to $998 for those in the Western region.
This lender will determine residual cash flow by looking at an applicant’s last two years of tax returns to assess monthly income after monthly obligations, property charges, and utilities have been subtracted (keeping in mind that monthly obligations are likely to decrease if a borrower uses the reverse mortgage to pay off the balance of an existing mortgage or other types of loans).
Cash flow can come from a variety of sources, including Social Security, retirement accounts, and investment returns, as long as the income can be considered stable and expected to continue. MetLife will still consider loans that do not meet these requirements, depending on documented compensating factors.
Because certain income levels for reverse mortgage borrowers is a new component to underwriting, not every lender will have the same requirements and applicants who may not meet a particular lender’s income requirements can still be considered for a loan depending on their particular situation.
Lenders will also be looking at other factors such as credit history and an applicant’s overall financial track record, so the financial assessment’s results will not depend solely on monthly income.
“Reverse Mortgage Income Requirements” by www.allrmc.com
The experts at All Reverse Mortgage® are here to answer your questions! If you have an inquiry about reverses and income requirements give us a call Toll Free (800) 565-1722 or request a quote by clicking here »
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