Paying your property charges is an important homeownership obligation. You’re not required to make a monthly mortgage payment on your reverse mortgage, but FHA requires that you continue to pay your property charges on an ongoing basis to remain in good standing.
Borrowers who fail to pay their property charges risk triggering a maturity event, which can make their loan balance due and payable in full.
Because payment of property charges is so important, FHA requires reverse mortgage lenders to evaluate your property charge payment history as part of the reverse mortgage application process.
Definition of “property charges”
So what exactly does the term “property charges” include? According to FHA’s HECM lending guide, property charges include the following:
- All property taxes, including school, city, county, state, etc. Taxes that have been permanently waived or exempted from payment and don’t accrue interest or result in a lien against the property are excluded from this definition. If you are exempt from property taxes, your lender will need proof of the exemption to complete your loan.
- Homeowner’s/hazard insurance
- Flood insurance
- Homeowner’s association (HOA), condominium, and planned unit development (PUD) fees
- Ground rents
Property charges can also include any other assessments levied by municipalities under state law, such as special assessments or mello-roos.
Your property charge payment history matters
Your reverse mortgage lender will consider you to have a satisfactory property charge payment history if:
- All property taxes for all owned real estate are current at the time of application and there are no arrearages in the last 2 years.
- All HOA, condominium, and PUD fees are current at the time of application and there are no arrearages in the last 2 years.
Note that the lender will evaluate the property charge payment history for all of the real estate you own, not just your primary residence.
If you haven’t owned your home for two years, then the lender will also evaluate the property charge payment history on your previous residence so they have a full two-year history.
If you don’t currently have insurance on your home, the lender (obviously) won’t attempt to document and evaluate a payment history. The lender will, however, require you to get insurance and prepay the coverage for the next 12 months of your pocket or through the proceeds of the reverse mortgage at closing.
If your property charges were paid late in the last two years, the lender may require a life-expectancy set aside (LESA) to be placed on the loan. You may be able to avoid the LESA if you can document an extenuating circumstance that was beyond your control that led directly to the late payments.