Lending

Reverse Mortgage Obligations: Staying in Good Standing for the Life of the Loan

Staying in good standing: taxes, insurance, HOA, upkeep, occupancy, the financial assessment, LESA, benefits and taxes.

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Talk to Maggie directly: cell (916) 549-3131 (text or call) · maggie@loveyoursurroundings.coMaggie B. Hopkins, NMLS #349517 · Surroundings NMLS #2528307

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What do you still have to do with a reverse mortgage?

This page is general information, not legal, tax or financial advice for your situation. Rules can change, so every fact below names its source and date.

No monthly mortgage payment doesn't mean no responsibilities. The CFPB's page on borrower responsibilities (last reviewed August 9, 2024) and 24 CFR 206.27 and 206.205 (checked October 22, 2026) come down to these:

pay property taxes, including special assessments, on time,
keep homeowners insurance, and flood insurance where required,
pay HOA dues, condo fees or ground rent,
keep the home in good repair, and
live in the home as your principal residence.

Falling behind on any of these can make the loan come due. The CFPB urges borrowers not to wait if they get a default notice. Reach out to the servicer and a HUD-approved housing counselor right away.

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What is the financial assessment, and why does it matter?

Before approving a HECM, the lender must check whether you can keep up with the loan. 24 CFR 206.37 calls it the Financial Assessment. It looks at four things:

Credit history: whether you've paid your bills, especially property taxes, insurance and housing costs.
Cash flow and residual income: whether your documented income covers your documented expenses with enough left over.
Extenuating circumstances: reasons behind past credit problems, such as an illness or the death of a spouse.
Compensating factors: strengths that offset a weak spot.

The CFPB notes that lenders didn't do a financial assessment on loans made before April 27, 2015. If you or a parent has an older loan, budget each year for taxes and insurance, because nothing was set aside.

The assessment protects you. A reverse mortgage that you can't sustain only delays a problem.

What is a Life Expectancy Set-Aside (LESA)?

A LESA holds back part of your principal limit to pay future property taxes and homeowners insurance for you. Under 24 CFR 206.205 (checked October 22, 2026):

Based on the financial assessment, the lender may require a LESA. For an adjustable-rate HECM, it may be partly funded instead of fully funded.
If a LESA isn't required, you can choose one anyway. That choice can't be cancelled later.
The amount is projected over the life expectancy of the youngest borrower, using HUD's formula.
With a fully funded LESA, the servicer pays the tax and insurance bills from the set-aside and adds each payment to your balance when it's paid.
With a partly funded LESA, the funds go to you twice a year to pay the bills yourself.

The trade-off: a LESA reduces how much you can draw for other things. The benefit: you're far less likely to fall behind. HOA dues are not part of a LESA. Under the same rule, you pay those yourself.

What if you leave the home for a while?

The CFPB's page on borrower responsibilities (last reviewed August 9, 2024) gives these guidelines when there's no co-borrower living in the home:

Away 2 to 6 months for non-medical reasons: tell your servicer so they know you still live there.
Away more than 6 months for non-medical reasons: the home is no longer your principal residence, and the loan must be repaid or satisfied.
Away more than 12 months in a row in a healthcare facility: the loan must be repaid or satisfied, matching 24 CFR 206.27(c)(2)(ii).

Every year, under 24 CFR 206.211, the servicer asks each borrower to certify that the home is still their principal residence and to confirm contact information. Answer it promptly. You can also name an alternate person to receive copies of notices, which helps if you're ever ill.

What does keeping the home in good repair mean?

24 CFR 206.27(b)(5) requires you to keep the property in good repair. The CFPB says that, generally, you have 60 days to start repairs after your lender or servicer tells you to make them (page last reviewed August 9, 2024).

Plan for the big items: roof, heating and cooling, water heater, plumbing and safety. A HECM line of credit can be a repair fund, but anything you draw adds to the balance. If you plan to stay for years, our aging in place home check helps you spot what may need attention.

The CFPB also warns about contractors who pressure homeowners into a reverse mortgage to pay for repairs (page last reviewed August 28, 2026). Get repair bids separately, and don't let anyone rush you.

Can you use a property tax postponement program with a HECM?

Be careful here. 24 CFR 206.27(b)(3) says the borrower shall not take part in a real estate tax deferral program, and shall not allow other liens on the property unless they are subordinate to the HECM.

California has its own Property Tax Postponement program for some older homeowners. Before enrolling in any postponement or deferral program, ask your servicer in writing how it would affect your HECM. Ask the same before adding any new loan or lien on the home.

Are reverse mortgage proceeds taxable?

Generally, no. IRS Publication 554 (2025), Tax Guide for Seniors, says reverse mortgages are considered loan advances, not income, so the amount you receive isn't taxable.

Interest is handled differently from a regular mortgage. The same publication says interest that accrues on a reverse mortgage isn't deductible as home mortgage interest in the year it accrues. Talk with your tax advisor about your situation, especially if a sale or payoff is coming.

How do you start checking whether you can keep up with a HECM?

Before any loan, add up your yearly property tax, insurance and HOA dues. Our Sacramento property tax calculator helps with the tax. Then fill out the loan options form and choose "A reverse mortgage," or call Maggie's cell at (916) 549-3131.

We'll walk through the financial assessment before you apply, so there are no surprises. You'll also meet with an independent HUD-approved HECM counselor. You're free to choose any lender.

Frequently Asked Questions

What happens if I fall behind on property taxes with a reverse mortgage?

Unpaid property taxes can make the loan come due under 24 CFR 206.27. Contact your servicer and a HUD-approved housing counselor right away if you get a notice.

What is a LESA?

A Life Expectancy Set-Aside holds back part of your principal limit to pay property taxes and homeowners insurance over time. The lender may require one after the financial assessment, or you can choose one.

Does a LESA pay my HOA dues?

No. Under 24 CFR 206.205, HOA and condo fees are the borrower's responsibility. A LESA covers property taxes and hazard and flood insurance.

Are reverse mortgage payments taxable income?

Generally not. IRS Publication 554 (2025) says reverse mortgages are loan advances, not income. Ask your tax advisor about your own situation and about interest.

Can a reverse mortgage affect Medi-Cal or SSI?

It can. Loan proceeds are not income, but money you keep past the month you receive it can count as a resource for SSI. Medi-Cal asset rules have changed in recent years, so get current advice first.

How long can I be away from home?

Per the CFPB, with no co-borrower at home: tell your servicer if you'll be away 2 to 6 months; more than 6 months for non-medical reasons, or more than 12 months in a row in a care facility, ends principal residence.