Financial Assessment: What Is It and Why Is It Needed?

by | Oct 26, 2016 | Eligibility, Infographic, Reverse Mortgages, Uncategorized

Financial Assessment is a relatively new but important requirement lenders use to determine a borrower’s reverse mortgage eligibility. HUD began requiring Financial Assessment in 2015 for reverse mortgages. With a reverse mortgage, borrowers are responsible for continuing to pay their homeowners’ insurance and property tax payments. The Financial Assessment helps to make sure borrowers can afford their tax and insurance payments and keep up with their other bills and financial obligations. The assessment measures both a borrower’s capacity (income) and willingness (credit worthiness) to manage a reverse mortgage.

Credit and other financial problems may not disqualify a borrower from getting a reverse mortgage. After the lender assesses a borrower’s capacity and willingness, the next step is to consider extenuating circumstances: hardships that affected a borrower’s ability to pay bills on time, such as health problems, job loss and other issues. The lender also assesses the borrower’s compensating factors, which are additional financial resources, such as retirement savings, spousal income and more. After considering these factors, the lender may determine that some borrowers will need a set-aside: a protective measure to help ensure they are able to meet their financial responsibilities. With a set-aside, a portion of the reverse mortgage funds is allocated to pay for a borrower’s property taxes and homeowner’s insurance for the life of the loan.

Once a borrower has passed Financial Assessment, regardless of whether a set-aside is needed, their application will continue through the loan process. You can learn more from our Newsroom item: Financial Assessment Effects and Updated HUD Training. Below, we show you how Financial Assessment works to protect you.


Infographic: Understanding Financial Assessment: Are you financially prepared for a reverse mortgage?

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