Reverse mortgages can be extremely helpful to older homeowners. Homeowners who qualify will often take out reverse mortgages as a way to provide them with some more financial flexibility. However, lenders must now perform a financial assessment on anyone who applies for a reverse mortgage.
What is a Financial Assessment?
Financial assessments help to ensure that borrowers have the ability to pay ongoing costs, which include things like property taxes, homeowner’s insurance and more, over the life of their loan. To perform a financial assessment, the lender will look at the different sources of income that the borrower has, including pensions, investments and Social Security benefits. This also requires that the borrower provides a number of different documents, including bank account statements and tax returns.
In addition to looking at a borrower’s current financial state and income sources, the lender will also look at their credit. Any type of credit trouble the borrower has needs to be explained. The lender will then have to figure out whether that explanation is enough to qualify as an extenuating circumstance in order to approve the loan.
If it’s found that the borrower doesn’t have the income or finances to be able to cover ongoing costs, the lender will set aside a specific amount of money to pay for those expenses. This amount will lower the amount of the loan proceeds that will be available to the borrower. This specific amount is determined by subtracting property charges, debt obligations and more from the income and assets of the borrower.
Once the borrower passes the financial assessment, they can receive the loan. However, the application can be denied if the lender decides that they don’t have enough cash flow. They may also choose to set the entirety of the loan proceeds in a “set-aside” amount that can only be used to pay expenses relating to the home.
Obviously, this affects a borrower’s ability to qualify for a reverse mortgage a bit more difficult than it used to be. It also affects lenders. This is because the process of approving a reverse home mortgage is now much more complicated and requires more work, which means it takes longer to go through each application.
For more information about applying for a reverse mortgage or to find out whether or not you qualify, be sure to contact us at Alliance Mortgage Group in the Denver area today.