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HUD continues to use a financial assessment for underwriting loans, employing a residual income method.  This approach is based on the principle that after paying all obligations, borrowers must have sufficient residual cash available each month to live on, or else the loan isn't beneficial.

The required amount of residual income varies depending on where you live and the size of your family.  If, after accounting for all your debts and property charges, you lack the minimum amount of money needed to sustain your living expenses each month, it could lead to a situation where all your equity is depleted without improving your monthly financial situation.

However, there are methods to meet the residual income requirements, and it's advisable to consult with another lender to ensure no possibilities have been overlooked.  The last thing you want is to secure a loan that doesn't truly aid your financial situation. I f it can be beneficial, exploring all options is crucial.

If you'd like to discuss your circumstances with us, we're here to help review your situation. It's possible we may conclude, just as another lender might have, that meeting HUD's requirements isn't feasible, and downsizing could be the best path forward.  Ultimately, the decision is yours.

Hello Lisa,

You must be 62 years of age or older to qualify for the HUD HECM reverse mortgage but there are private or proprietary reverse mortgages that will accept younger borrowers that you may want to look into. 

I would suggest that you start by visiting a reverse mortgage calculator like the one on our website at https://reverse.mortgage/calculator so you can enter your information to see if the funds available to you would be adequate for your needs. 

Your credit may or may not be an issue based on your health issues and it may take some explanations along with some supporting documentation but you may find that the private programs do work for you or that you really need to wait for your 62^nd birthday.

Hello Dee,

Reverse mortgages use residual income for approval and it is based on the family size and the area of the country in which the property is located.  When you say “What is the residual requirement on a first mortgage”, are you asking about other loans?  Because most loans do not use a residual income method for qualification purposes. 

The reverse mortgage does because there are no mortgage payments to consider whereas with other traditional loans, the lender must consider the mortgage payments for which you are applying plus the taxes, insurance any other property charges and other debts in your qualification. 

Therefore, the typical qualification method for other loan types is a ratio method whereby the lender uses a percentage of your total income as the determining factor for your qualification for your housing and then a second ratio of your housing and all other debts. 

Each lender and each loan type are different and you should check with the lender you are considering to determine their ratio requirements. 

Hi Jan,

There is no problem with the family members also living in the house, but I do have a few things to forewarn you about.  Firstly, the loan becomes due and payable as soon as the borrower is no longer living in the property as her primary residence. 

With a 95-year-old borrower that may mean that her grandson and family may be in a position in a relatively few years in which they will have to face the decision of what they will do for living quarters. 

If there is any concern at all about mom possibly needing to move to assisted living or if her health is in question, the loan would be called due and payable by the lender and the family living in the home would not stop that action.

Secondly, with the additional family in the home, the qualification is a little tougher.  HUD uses residual income to determine the borrower’s ability to qualify and the family size living in the home is taken into consideration to determine the amount of residual income required for the financial assessment qualification. 

The amount required varies in different areas of the country based on cost of living, but it can make a difference of several hundred dollars of income needed to qualify with 4 more people living in the home. 

If mom’s income is strong and she has no other debts, this may not even be an issue, but you would probably want to know before proceeding.

Hello,

You have several issues to consider and I would not want to try to answer them all on a blog.  Lenders must consider what is a beneficial transaction in many states and it may or may not be considered beneficial to refinance a loan with such a low interest rate (even though you would eliminate your payments but I don’t know what your current loan balance is).  The reverse mortgage does require about 50% equity in the property so that may be the answer to everything there – you said you don’t have much equity so you may not be eligible from that standpoint.

There are no debt ratios, but HUD does us “residual income” whereby borrower must have a minimum amount of money left over after paying all obligations to live on each month.  This is how HUD determines qualification.  Your payment history being on time is great and that helps if all the other things I discussed previously are ok.

There is no “escrow account” with the reverse mortgage but there are Life Expectancy Set Aside (LESA) required at times.  The LESA is money set aside from the reverse mortgage to pay the taxes and insurance for the life of the loan.  It’s set aside because there are no payments made on a reverse mortgage and therefore, nothing being collected to make those payments.  If you were required to have the LESA account, that would take care of the need to pay your taxes and insurance, but it would mean less money available for you and if you already do not have much equity, it would probably mean this is not the right loan for you. 

However, I would encourage you to visit our online calculator at https://reverse.mortgage/calculator to see if the amounts available to you under the HUD program would work for you based on your age, the property value and the amount you owe.  If that looks promising, you can then decide if you would like to discuss your circumstances further with a loan officer to see if this is a good option for you.

Hello Josie,

No one needs to see your renters’ tax returns.  The lender will need to request your returns to assess the income and expenses you have for the property but no lender should ever ask for documentation That does not pertain to the property or you personally.

Hello Carolyn,

HUD uses a residual income method to qualify borrowers.  The residual requirement is higher depending on how many people are living in the home.  Utilities, food, and all living costs are higher for 4 people than for 2.  Yes, you absolutely can have your daughter and grandson living in the home with you, but the amount of income under the HUD financial assessment guidelines required to qualify for a family of 4 is higher than for a family of 2.  The lender should not have told you not to say anything to the appraiser, that indicates that they may not have been truthful on your loan application.  It is ok to have someone there temporarily and you do not have to claim them as permanent occupants, but if they live in the home permanently, you should be listing them as occupants and the originator should be working to make sur that you qualify legitimately under the HUD rules.

Hi Bonnie,

In 2014 HUD announced the final version of their financial assessment guidelines which they implemented in 2015. Borrowers have had to meet income and credit criteria since that time.  Since the HUD manual dealing with this subject is many pages long and would be very difficult for us to cover in a blog post, I will link to that information here.

But I will tell you borrowers have to show overall fair credit with an emphasis on the past two years - especially on the payments dealing with the obligations of the home (mortgages, taxes, insurance, HOA dues, etc). Borrowers have to have minimum disposable income after all debts are paid and the amount is determined by the household size and the area of the country and how expensive it is to live there.

The required amounts are not great and borrowers who do not meet the residual income requirements should seriously consider whether or not this is the right loan for them as they would still be unable to live in the home comfortably even with the loan.

And you can always visit our website to see if the loan would be right for you. There is no cost,  pressure or obligation.  Check it out at https://reverse.mortgage/calculator.

Hi Donna,

There are financial assessment requirements but they are not really difficult to meet. If you cannot, you would not in all likelihood be able to pay your taxes and insurance and still be able to live comfortably in the home even with the reverse mortgage.  Please feel free to visit my calculator here and you can get a free no obligation proposal to see if the loan will work for you.

Hi Jo,

FHA Reverse mortgages use a residual income method to qualify borrowers – not a ratio method.  If your credit is good, the financial assessment will look at your monthly income and work backward to determine your eligibility as long after all your debts are paid, you have sufficient residual income on a monthly basis.  So let’s look at what you have given me.  $44,000 per year is $3,667 per month all by itself.  Property tax of $9,000 is $750 per month taking you down to $2,917 per month.  Insurance of $800 per month is $67.00 per month which takes you down to $2850.00.  $4,000 HOA Dues are $333.00 per month or now you are down to $2517.00 per month.  HUD uses a utility factor of $.14 (fourteen cents) per square foot so if your new home is 25oo square feet, that amount for utilities will be $350.00 per month bringing you down to $2,167 per month residual income left over after all your housing costs are paid.

Now if you have any other debts that you pay monthly (car payments or credit cards, etc), those amounts would also have to be subtracted from the $2,167 that you have left so far.  HUD has different residual income requirements in different parts of the country (it’s more expensive to live in CA or NY than in FL or TX), but as long as a single person has at least $590.00 per month residual income after all debts are paid and it’s a little under a $1,000 per month for a family of two.   If you only have the obligations you listed above, then you will qualify quite nicely and you don’t even need that royalty income to qualify.

Please feel free to visit me on my calculator at and I will be happy to show you just what you can qualify for.  It’s quick and easy and we close many reverse mortgage purchases every month.

Hi Joyce,

The HUD HECM is a loan, not a government grant program.  There are financial assessment guidelines to be certain that borrowers can still afford to pay the taxes and insurance once the loan is in place (not paying them is a default under the program and HUD does not want the loans to default).  There is no maximum borrowers can make or maximum net worth borrowers may have since this is not a needs-based program. 

Hi Julie,

Your question is not for us but for a conventional mortgage lender.  The question has nothing to do with the reverse mortgage and everything to do with qualification for a second home on a traditional loan (which we do none of working solely with reverse mortgages).  And since I have not originated a forward loan in more than 10 years now, I would not be much of a qualified source to answer your question on what you can and cannot do on that loan.

I would think that they would have to use the taxes and insurance you have to pay on the primary residence even though there is no mortgage payment to determine whether or not you qualify with whatever mortgage payment and other obligations there are on that property, but I would not think they would use any kind of minimum payment even though there is no payment on the loan itself.   However, as I stated to begin with, I could not make this statement as fact and would suggest you contact a lender who would make this type of loan.

Hello Leroy,

We really don't have a minimum credit score requirement but we will be looking at your last 24 month credit history to make sure that there aren't any serious delinquencies such as late payments on your property taxes, credit card debts or mortgage obligations. If there are those problems present we would present you with an updated proposal including what's called a LESA - (Life expectancy set aside). This is an account we use to maintain your property taxes and homeowners insurance should you not meet the minimum credit standards for the program. As far as income you will be required to meet a minimum residual income requirements set forth by the FHA. It's not a full debt to income ratio type qualification but more of an ability to maintain taxes and insurance for your expected lifetime. You can learn more about the residual income requirements here.

Hello Annie,

I can't really give you a full proposal without knowing all the parameters, but under the best of circumstances, running the information that you have given me tells me that the reverse mortgage would still leave you at least $87,500 short to pay off your current mortgage, and that is assuming a value of $625,500 or more and that your 67th birthday will fall within 180 days of the anticipated closing date.  If your value is $625,500 or greater and you think bringing in this much money is an option and want to discuss the programs, please let us know.  You might also contact your current lender and ask if there are any options for a lower payoff under the circumstances.