CRMP Borrower Qualification Requirements 2 — Questions and Answers
Question 1: A borrower is 68 years old and owns a home with a remaining mortgage balance. How does this affect HECM eligibility?
- The borrower is ineligible because the home must be owned free and clear
- The borrower may be eligible; the reverse mortgage proceeds must first pay off the existing mortgage (Correct answer)
- The borrower must wait until age 70 to apply if a mortgage balance remains
- Existing mortgage balances automatically disqualify any HECM applicant
Correct answer: The borrower may be eligible; the reverse mortgage proceeds must first pay off the existing mortgage
Existing mortgages do not disqualify a borrower; HECM proceeds are used to satisfy outstanding liens at closing.
Question 2: Which of the following best describes the 'primary residence' requirement for HECM eligibility?
- The borrower must have lived in the home for at least 10 consecutive years
- The borrower must occupy the property as their principal residence for at least 6 months per year (Correct answer)
- The home must be in the same state where the borrower was born
- The borrower may occupy a secondary vacation property as the qualifying residence
Correct answer: The borrower must occupy the property as their principal residence for at least 6 months per year
HUD requires HECM borrowers to occupy the property as their principal residence, generally defined as living there more than half the year.
Question 3: A 62-year-old applicant is the sole owner of a home but their 55-year-old spouse also lives there. What is the correct course of action?
- Both spouses must be at least 62, so the application is automatically denied
- The 55-year-old may be listed as a Non-Borrowing Spouse (NBS) with protections under current HUD guidelines (Correct answer)
- The 55-year-old must be removed from the title before application
- The couple must wait until the younger spouse turns 62 before applying
Correct answer: The 55-year-old may be listed as a Non-Borrowing Spouse (NBS) with protections under current HUD guidelines
HUD's Non-Borrowing Spouse (NBS) policy allows eligible NBS protections for spouses under 62, permitting them to remain in the home after the borrower's death.
Question 4: Under the Financial Assessment (FA) requirements, what is a lender primarily evaluating?
- The borrower's credit score on a 300–850 scale
- The borrower's willingness and capacity to pay property charges such as taxes, insurance, and HOA fees (Correct answer)
- Whether the borrower has sufficient retirement savings to last 20 years
- The borrower's debt-to-income ratio compared to conforming loan standards
Correct answer: The borrower's willingness and capacity to pay property charges such as taxes, insurance, and HOA fees
Financial Assessment evaluates a borrower's ability and willingness to meet ongoing property charge obligations to protect both the borrower and the FHA insurance fund.
Question 5: Which property type is generally NOT eligible for a HECM?
- Single-family home
- FHA-approved condominium unit
- Cooperative (co-op) housing unit (Correct answer)
- HUD-approved manufactured home on a permanent foundation
Correct answer: Cooperative (co-op) housing unit
Co-op units are not eligible for HECM because the borrower holds shares rather than real property, which does not meet FHA collateral requirements.
Question 6: A lender determines a HECM applicant has a history of late property tax payments. What is the likely outcome under Financial Assessment rules?
- The application is immediately denied with no recourse
- The lender may require a Life Expectancy Set-Aside (LESA) to cover future property charges (Correct answer)
- The borrower must pay a larger upfront MIP to compensate
- The lender must reduce the Principal Limit Factor by 10%
Correct answer: The lender may require a Life Expectancy Set-Aside (LESA) to cover future property charges
When Financial Assessment reveals credit blemishes related to property charges, lenders may require a LESA to ensure future taxes and insurance are paid.
Question 7: At what point must a HECM borrower complete HUD-approved counseling?
- After the loan closes but within 30 days of disbursement
- Before the loan application is submitted to the lender (Correct answer)
- Only if the lender's Financial Assessment reveals credit problems
- Within 90 days after receiving the loan comparison worksheet
Correct answer: Before the loan application is submitted to the lender
HUD mandates that borrowers receive independent counseling from a HUD-approved agency before any loan application is submitted.
CRMP Borrower Qualification Requirements 2
A borrower is 68 years old and owns a home with a remaining mortgage balance.
How does this affect HECM eligibility?