Can I pay the property insurance and taxes yearly without the lender holding part of the funds in a reverse mortgage for a number of years?
And then, instead of an automatic declination if your income or credit does not meet the requirements like a typical loan, then there is a second opportunity with a Life Expectancy Set Aside (LESA) wherein the funds are set aside to pay the taxes and insurance from the loan proceeds and you can still get the loan.
Now, before you think that a LESA is a really bad thing, let me explain it a bit further and then you might see why a number of borrower actually request it after they get all the facts.
The funds that are set aside do limit the amount of money available to you by that much to use for other purposes, that is true. So if you planned on using every bit of your reverse mortgage for other purposes and you need the LESA to qualify, then the loan may not be for you with that requirement.
But if you were going to use the funds for living expenses anyway, this enables you to truly eliminate all household expenses (with the exception of your utilities and maintenance). Because the lender would take over the payment of your taxes and property insurance, you no longer have a mortgage payment, property tax payment or insurance payments to pay.
The funds are not considered borrowed until the lender actually uses them to pay your payments. So only those funds that are used to pay that installment of taxes or insurance are added to the balance and the other LESA funds remaining are not funds you have borrowed yet and you do not accrue interest on funds you have not borrowed.
There is no fee to have your taxes and insurance paid for you and they are paid on time for as long as you own your home (at some point in time servicing fees may reappear on loans with LESA’s but that is not the case at this time).
The bottom line is that you don’t have to have a LESA if you meet the income and credit criteria of the program but if not, take a good look at the program with it, you might find out that it still meets your desired goals (and you might actually like it).
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