Understanding Who Pays the Property Taxes on a Reverse Mortgage

A reverse mortgage can be a great way to access some of the equity in your home, but it's essential to understand the tax implications. Typically, the borrower is responsible for paying property taxes on a reverse mortgage.

The lender may require the borrower to pay the property taxes directly, or the lender may set aside funds in an escrow account to cover the taxes. Borrowers should review their loan agreement to determine their specific responsibilities.

The borrower's age and income level can impact their property tax obligations. For example, if a borrower is 62 or older and has a low income, they may be eligible for a property tax deferral program.

You're considering a reverse mortgage and wondering who pays the property taxes and insurance. The good news is that you, the homeowner, are typically responsible for paying these expenses. However, there are some exceptions and alternatives you should know about.

In most cases, you'll need to pay your property taxes and insurance on time, just like with a traditional mortgage. If you don't meet the program's residual income or credit requirements, your lender may require you to set aside a portion of your loan proceeds to pay these expenses.

If you're approved for a reverse mortgage, your lender will assess your financial situation to determine how you'll pay for ongoing property taxes and homeowners insurance. You can choose to pay these expenses directly or have your servicer pay them for you using money from your reverse mortgage funds.

Here are your options:

If you don't meet the requirements, your lender may require you to set aside a portion of your loan proceeds as a reserve to pay all or some of your property taxes and homeowners insurance. This reserve will be used to pay your expenses when the time comes.

It's worth noting that for loans made before April 27, 2015, lenders didn't perform a financial assessment, and borrowers typically needed to budget each year to ensure their taxes and insurance were paid on time.

A reverse mortgage doesn't automatically cover property taxes, you're still responsible for paying them on time.

You can use the extra cash from a reverse mortgage to help stay current on your property taxes, but it's not a guarantee.

If you fail to pay your property taxes, you could default on your reverse mortgage and risk losing your home.

The good news is that if you don't meet the program's residual income or credit requirements, you might be eligible for a Life Expectancy Set Aside (LESA), which allows the lender to set aside funds to pay your taxes and insurance.

This means you can still get the loan and have your taxes and insurance paid for you, but the funds set aside will limit the amount of money available to you for other purposes.

There's no fee to have your taxes and insurance paid for you, and they'll be paid on time for as long as you own your home.

Here are the key points to keep in mind about reverse mortgages and property taxes:

Paying your property taxes and homeowners insurance on time is crucial when you have a reverse mortgage. Your lender will do a financial assessment to determine how you'll pay for these ongoing expenses.

For loans made after April 27, 2015, your lender will either determine that your credit and property charge payment history and residual income are sufficient to pay future property taxes and homeowners insurance, or that you need to set aside a portion of your loan proceeds as a reserve.

If your lender determines that you can pay these expenses directly, you have two options: pay your property charges directly or have your servicer pay your charges using money from your reverse mortgage funds.

If your lender determines that you need to set aside a reserve, they will either pay your property taxes and homeowners insurance directly from the reserve when it's fully funded, or send you the money so you can make the payments when it's not fully funded.

To check if loan money was set aside, review your monthly account statement or contact your lender or servicer. If the reserve can no longer cover your property taxes or homeowners insurance, your lender will let you know.