With reverse mortgages, borrowers always retain ownership or title of the home. The lender will never, at any point, own the property, even after the last surviving spouse permanently vacates the property.
Amount of funds eligible for
The amount of money a borrower is qualified for depends upon her or his age, the home’s value, upfront costs and interest rates. The older a borrower, the more proceeds she or he receives.
There’s a limit to the quantity of money a borrower may access within the initial 12 months upon closing. If the borrower is qualified for a $100,000 loan, for instance, no more than 60%, or $60,000, may be accessed. Within month 13, the borrower may take as little or as much of the rest of the proceeds as she or he wants. There are exceptions to the 60% rule. The borrower may withdraw a little more if there’s an existing mortgage, or additional liens on the home, which have to be paid off. The borrower may withdraw enough to pay off these obligations, in addition to another 10% of the maximum amount allowed — in which instance that is an additional $10,000, or 10% of $100,000.
Financial assessment
HECM lenders have to perform “financial assessments” of all reverse mortgage borrowers to make sure the person has enough funds to pay continual costs, like homeowners’ insurance and property taxes, over the loan’s life.
HECM lenders have to search all the borrower’s income streams, like pensions and Social Security, and all additional resources, like investments. Borrowers must provide supporting documents, like bank account statements and tax returns.
The financial evaluation leads lenders to decide whether it needs to set apart a specific amount of funds to pay for property taxes and additional costs over the loan’s course. This “set aside” will decrease the loan proceed amount available to a borrower.
To find out whether a set-aside will be needed, the HECM lenders subtract property fees, debt obligations and additional living costs from a borrower’s assets and income. The resulting “residual income” includes the quantity of funds left over every month. The amount is compared to the government threshold figure which will determine whether the borrower has enough month-to-month residual income in order to pass the evaluation.
For more information on our HECM lenders, contact Longbridge Financial today.
