We are under chapter 13 bankruptcy would we be able to do a reverse mortgage? I am 64 my husband is 78
HUD has different requirements for the purchase program and someone who is doing a loan on their existing property. If your desire is to utilize the reverse mortgage for purchase program, you cannot have a bankruptcy for the previous 24 months prior to the loan.
If you are looking at doing a loan on your existing property, you can do a reverse mortgage, even if you are still in the Chapter 13 Bankruptcy but there are things you need to know.
Firstly, you must have been making on time payments under the plan established by the court for a minimum of 12 months. The court has to issue an approval for you to obtain the loan.
Finally, there is a good possibility that you may be required to have a full or partial Life Expectancy Set Aside (LESA) for your taxes and insurance depending on the issues surrounding the BK and your other credit profile.
If you are required to have the LESA, the lender is required to set aside funds from the reverse mortgage proceeds to pay your future taxes and insurance.
The amount required to be set aside for borrowers is dependent on whether it must be a full or partial LESA, the borrowers’ ages and the amount of your taxes and insurance.
The LESA is not a fee, but rather funds that are set aside and not made available to you to use for other purposes, the servicer will use them to pay taxes and insurance as they come due just like an impound account on a forward loan but because you make no payments on a reverse mortgage, the funds are set aside from the beginning for the future payments.
The funds are not considered “borrowed” until they are actually used or sent to the taxing authority or insurance company by the servicer and that is when that portion is added to your loan amount.
We have had borrowers actually request LESA’s even when not required of them because they liked the idea of not having to pay their taxes and insurance anymore both from the standpoint of convenience and cash flow.
The only real hitch is that if it is required, you have to have adequate funds available to you under the reverse mortgage to pay off any loans currently on the property, fund the LESA and still have the remaining proceeds to do what you want to do with the reverse mortgage loan.
Let us know and we can run the numbers for you to see if it will work out for your needs.