How LESA helped Elizabeth stay in her home

LESA helps senior homeowner stay in her home

Retirement finance has no cruise control. No one can tell you how much your household will need to spend or be able to spend for more than a few future years. The only realistic solution is to plan for the long term but adjust often.

Use your home to stay at home

When Elizabeth finally decided to retire from her job with Riverside County she was certain she had her retirement finances under control. Her CALPERS pension would provide a steady income, she had saved a few thousand dollars and most importantly she owned her Sun City home mortgage free.

Related: I think we’re going to need a new retirement plan

Not all retirements go as planned

But Elizabeth was about to embark on a journey that few anticipate but many experience. She was diagnosed with advanced stage breast cancer. Fortunately Elizabeth had an excellent support system and within a few months was pronounced cancer free.

During her recovery period, however, she fell behind on some of her financial obligations including medical bills not covered by Medicare and her property taxes. She quickly arranged payment agreements with her creditors and Riverside County. Though the payments were tight on her budget she was able to maintain the payment agreements.

Related: Are you swimming in equity but drowning in debt?

What is financial assessment?

In 2015 “financial assessment” was added to the qualifying criteria for FHA insured reverse mortgages (HECM). The lender subtracts property charges, debt obligations and other living expenses from the borrower’s income and assets. The resulting “residual income” is the amount of money left over each month. This figure is compared to a government threshold amount (based on region and family size) that determines whether a borrower has enough monthly residual income to pass the assessment.

Because of her limited income and the outstanding debt obligations Elizabeth did not meet the residual income requirements. However as part of financial assessment, the program allows for LESA to help more seniors get the reverse mortgage they need.

Related: Choosing the right reverse mortgage lender

What is LESA?

LESA is the acronym for Life Expectancy Set-Aside. With LESA a portion of the the borrower’s reverse mortgage proceeds are reserved for future payment of property taxes, homeowner’s insurance and flood insurance (if required). Although these funds are reserved for specific future use, you aren’t charged any interest on them until they are actually used to pay the tax or insurance costs.

Related: What to do when you’re house rich but cash poor

How LESA helped Elizabeth use her home to stay at home

The “tipping point” for Elizabeth came when her 20 year old HVAC unit died. Summer was approaching and she didn’t have the $10,000 to replace it. She tried replacing it with a window unit but it was overmatched for SoCal summers.

Because of her history of delinquent property taxes and not meeting residual income requirements Elizabeth was a candidate to be declined for the reverse mortgage she desperately needed.

The New Reverse Mortgage to the rescue

Home Value

$230,000

Cash at close

$50,000

Line of Credit/LESA*

$48,032

Monthly payment

$0

Equity Reserve

$121,210

* Property taxes and homeowner’s insurance are paid with funds from the LESA as they come due.

At closing all of the loan fees were paid and Elizabeth received $50,000 which paid in full her delinquent property taxes and unpaid medical bills. She was able to get a new HVAC unit installed and replenish her cash reserves.

The New Reverse Mortgage isn’t for everyone…but it could be!

If you’re still wondering if The New Reverse Mortgage is the right solution for you but you’re not ready to sit down with one of our Reverse Mortgage Experts, then we’ll be happy to mail (or email) you Use Your Home to Stay at Home which is the official federally approved consumer booklet for those considering a reverse mortgage.

From the desk of Greg Cook

greg@reverselendingexperts.com; 951.265.4532​