Tax Facts

8196 / Are there any financial assessments that are required in determining a taxpayer’s eligibility for a reverse mortgage?

Yes. As a result of several instances in which taxpayers were approved for reverse mortgages where they did not have the financial ability to maintain the home, the Federal Housing Administration (FHA) has issued new financial assessment rules in order to determine whether a taxpayer will be eligible for a reverse mortgage.



For reverse mortgages issued after January 13, 2014, in order to approve a reverse mortgage, the lender must first complete a financial assessment of the taxpayer that includes the following steps:
(1)  performing a credit history analysis,

(2)  performing a cash flow/residual income analysis,

(3)  documenting and verifying credit, income, assets and property charges,

(4)  evaluating any extenuating circumstances and compensating factors that might otherwise impact a taxpayer’s financial position,

(5)  evaluating the results of the financial assessment in order to determine eligibility,

(6)  determining if funding sources for property charges from HECM proceeds will be required, and

(7)  completing a HECM financial assessment worksheet.1

Further, in order to qualify for a HECM reverse mortgage, a taxpayer must now fully satisfy any federal judgments and delinquent debts to the federal government (or enter into an approved repayment plan prior to closing the HECM mortgage). The FHA does not similarly require that any state or local judgments be satisfied prior to closing a reverse mortgage.






1.  HUD Mortgagee Letter 2013-28. The Department of Housing and Urban Development (HUD) financial assessment guide provides detailed guidelines for the financial review, as well as the factors that must be considered in determining whether to issue the reverse mortgage. It is available at http://portal.hud.gov/hudportal/documents/huddoc?id=13-28ml.pdf (last accessed May 30, 2020).

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