Later this year, the FHA will begin a financial assessment on borrowers looking to obtain a Reverse Mortgage. The purpose of the assessment is to evaluate the mortgageor's willingness and ability to meet their financial obligations.The assessment will also be used to calculate whether a portion of the Reverse Mortgage proceeds will need to be held back in order to cover property taxes and insurance in future years. According to HUD, the new financial assessment guidelines will focus on:
•performing credit history analysis and cash flow/residual income
• evaluating extenuating circumstances and compensating factors;
• evaluating results of the financial assessment to determine eligibility
for the HECM;
• determining if funding sources for property charges from HECM proceeds
will be required;
• completing a financial assessment worksheet;
• verification requirements and documentation standards for credit, income,
Additionally, underwriters will look at the borrowers current monthly obligations (found on their credit report) and property charges that include property taxes, home owners insurance, and HOA payments. HUD will require a calculation based on the square footage of the home and is similar to the VA calculation of $.14/sq. ft. If a home is 1800 square feet, an assessment of $252/month would be included in the calculation when determining if a borrower qualifies.
Another component of the calculation will be based on the geographic region the borrower resides in. In the Southwest region, $589/month for a single person and $998/month for a couple would be added to the equation when calculating the financial assessment. For example: a couple living in Southern California who have a 2000 square foot home, $350/month in credit card debt, property taxes of $3000/year and paying $1200 for homeowners insurance would need to make $1978/month to qualify according to the new financial assessment. For many couples living in Southern California $1978/month may not seem like a lot of money however, many senior borrowers looking at a reverse mortgage are doing so because they are on a very tight budget and possibly living month to month.
Unfortunately, the few that do not pass this financial assessment may not qualify for a reverse mortgage and may be forced to sell their home. On a positive note, most borrowers will pass this new policy imposed by FHA.
For more information on purchasing a home, reverse mortgages or home financing contact us at www.ARAMCO.biz or call 877-700-0942.