What happens after you closed on your FHA-backed reverse mortgage? Two main things. You will start receiving your loan disbursements, e.g. periodic or lump sum payment as stipulated in your loan documents. From your end, you have to satisfy the HECM’s conditions such as remaining in the home and paying all property charges. These obligations are necessary to keep your loan current and steer you away from default.
If you have a HECM, you or at least one borrower on the loan is obligated to remain in the home as his/her primary residence. This is proved by an Annual Occupancy Certification, which the servicer sends out every year and for you to sign and return accordingly.
According to the NRMLA, the loan servicer is required to obtain this certification per HUD rules. If it’s unable to receive such certification, the loan servicer will have to order for a home inspection and take other actions all to determine if at least one borrower is occupying the property. These actions can result in inspection fees, or worst a declaration of loan default if the servicer can’t determine if there is a borrower occupying the property.
In cases where you have to leave for medical purposes for a certain period, inform your loan servicer. Failure to occupy the property for more than 12 consecutive months triggers the loan’s maturity.
As a borrower, you are obligated to pay all charges related to the maintenance of the home in a timely manner. These property charges include but are not limited to the following:
- Property taxes: Always pay your real estate taxes as they become due. Your loan servicer has access to your tax payment records so they’d know if you’ve been keeping up with your tax obligations.
- Property insurance: The loan requires that you keep the property in a tip-top condition. The homeowner’s insurance should cover the costs of repairs when a large tree falls and damages your property or when hazard or flood happens.
- Other property assessments: Aside from insurance premiums and taxes, you may have to pay ground rents, homeowner association dues on condos, and other assessments as applicable to the property.
If you neglect on any of these property-related obligations and let your home fall into disrepair, your loan servicer will call you out and declare a loan default. Always contact your loan servicer if you have trouble meeting these financial obligations.
The Role of LESA
At the time of your loan origination, your lender will calculate the amount required for your Life Expectancy Set Aside. It’s like an escrow account bearing funds for your future taxes and flood and hazard insurance premiums.
Whether this set-aside is partially or fully funded will depend on your lender’s assessment of your willingness or capacity to meet such financial obligations under the mortgage.
In case the funds in the LESA run out, the lender is required to make the property charge payment and charge the same to the borrower’s account.
Essentially, the LESA is established to help you be timely with your financial obligations.