A Life Expectancy Set Aside, or LESA, is a government-implemented guideline that requires some reverse mortgage borrowers to put aside a portion of their reverse mortgage proceeds to pay for their property taxes and homeowners insurance for a certain amount of time. The LESA can be beneficial for many since it takes away the responsibility and burden of remembering to pay their property taxes and homeowners insurance. The LESA is part of the government’s effort to lower the number of loan defaults that happen when homeowners do not uphold these responsibilities of the loan.
What is Credit History and How is it Reviewed?
Whenever you open a credit card account or take a loan out on your house, college education, business, or any other major purchase, you create a credit history. Your history shows how responsible you are as a borrower. It will show how much debt you have accumulated, if you repay loans on time, or if you have made late payments or missed them entirely. All of these factors can have a negative effect on your credit history.
Why Would You Need a LESA?
If your credit history shows that you have struggled to make payments on time or you are behind on payments, it may suggest that you may not be willing or able to pay your property taxes and homeowners insurance. These are both important requirements of a reverse mortgage borrower. If you do not uphold these responsibilities, your loan could default and you could face foreclosure. We want to make sure you are in the best position to succeed with your loan and avoid foreclosure. That’s why we require a LESA for anyone who may be at risk of not paying their property taxes and homeowners insurance. The LESA is in place to prevent default from happening. It’s a measure put in place to help protect the borrower. If, during financial assessment, your credit history shows some red flags, a LESA may be required to ensure your loan success.
What are the Benefits of a LESA?
There are numerous benefits to getting a LESA, whether partial or full, and whether you choose to have one or are required to. The LESA helps eliminate the risk of you defaulting on your loan because you didn’t pay for the homeowners insurance or property taxes. It’s basically just a backup and safety net to make sure you have enough money left to pay for the essentials. The LESA can help you make responsible choices with your reverse mortgage money and ensures you will uphold your responsibilities of the loan. It also takes away the stress of having to pay property taxes and insurance. You won’t have to worry about having enough money to pay them because the money is already there, in your LESA, ready to be used. The LESA also removes the burden of trying to remember if you paid your insurance and taxes because it is done for you.