Reverse Mortgage Set-Aside Explained
A Life Expectancy Set-Aside, or LESA, holds back part of a HECM to pay property taxes and insurance. Here is when one is required, how the full and partial versions differ, and what each one pays.
What a set-aside pays for
A LESA is set up to pay property taxes, hazard insurance and, if applicable, flood insurance.
- A LESA pays property taxes, hazard insurance and, if applicable, flood insurance.
- Property taxes covered by a fully funded LESA include special assessments levied by municipalities or state law.
- With a fully funded LESA, the servicer pays the taxing authority or insurance carrier directly.
- With a partially funded LESA, the borrower receives semiannual disbursements and delivers the full payment to the billing agency.
- LESA funds cannot be held in an escrow account.
- The borrower still pays other property charges, such as HOA and condo fees, on their own.
Taxes and insurance get paid
Bills go straight to the source
Servicer covers its late payments
A path past payment history
Sized with future increases in mind
You can choose it yourself
How A Set-Aside Gets Decided
The HUD financial assessment decides whether a set-aside is required and which kind.
HUD requires a financial assessment for each prospective borrower. It documents credit, income, assets and property charges, and it looks at payment history and residual income. Based on the results, a partially or fully funded Life Expectancy Set-Aside may be required.
If credit or property charge payment history is not acceptable after any extenuating circumstances are considered, a fully funded LESA is required. If history is acceptable but residual income falls short and no compensating factors can be documented, a partially funded LESA is required at a minimum. If the partially funded amount would be more than 75 percent of the projected life expectancy property charges, a fully funded LESA is required instead.
Among the inputs our reverse mortgage program uses to size the set-aside are the life expectancy of the youngest borrower, the current property taxes and homeowners and flood insurance premiums, and a factor for future increases. A LESA is a portion of the principal limit set aside for these charges. If residual income would still fall significantly short even with a fully funded LESA, the HECM cannot be approved.
Why choose Saxton for a reverse mortgage with a set-aside
This page is for borrowers whose financial assessment may call for a set-aside, and for adult children helping a parent understand one.
Partial Set-Aside Is Adjustable Only
In our reverse mortgage program, a partially funded LESA may be required on adjustable-rate HECMs only. A fully funded LESA may be required on either fixed or adjustable.
Hardships Get A Fair Look
Extenuating circumstances are not limited to a fixed list. They can count when the event clearly hit your finances, you did not cause it, it is not likely to recur, and you have other resources to fall back on.
A Voluntary Choice Is Permanent
You can ask for a fully funded LESA even when one is not required. Once you elect it, you cannot cancel that choice.
Disbursements Add To The Balance
Each set-aside payment the servicer makes is added to the loan balance when it is paid out. With a partially funded LESA, each semiannual disbursement to you is added to the balance when it is disbursed.
Know What Happens At Zero
The projected set-aside may not last for the full life expectancy. When the funds run short or the balance hits zero, the borrower pays all property charges.
No Funds During Deferral
No set-aside funds are available during any deferral period for an eligible non-borrowing spouse. During a deferral period, the spouse must make sure the loan’s other obligations, including property taxes and insurance, continue to be met.
Hear From Homeowners Like You
Frequently Asked Questions
Borrowers and their families ask these questions most often about a LESA.
It is a portion of the principal limit held back to pay property taxes, hazard insurance and, if applicable, flood insurance. The money stays in a set-aside account, not an escrow account, until it is used up or the loan becomes due and payable.
When credit or property charge payment history is not acceptable and no extenuating circumstances can be documented. It is also required when a partially funded LESA would be more than 75 percent of the projected life expectancy property charges.
With a fully funded LESA, the servicer pays the tax and insurance bills directly. With a partially funded LESA, the borrower receives semiannual disbursements and stays responsible for paying the bills on time.
Yes. You can voluntarily request a fully funded LESA. On an adjustable-rate HECM you can also have the servicer pay these charges from your monthly disbursements or line of credit, or pay them yourself. A voluntary election cannot be canceled.
With a partially funded LESA, if the set-aside cannot cover the next semiannual disbursement, the servicer takes the rest from a line of credit or adjusts the payment plan. If funds are still short, the servicer advances its own funds and the loan may be eligible to be called due and payable. With any LESA, the borrower is responsible for all property charges when the funds are insufficient or the balance is zero.
No. A fully funded LESA covers property taxes and insurance. The borrower remains responsible for timely payment of all other property charges, including HOA and condo fees.
Failing to pay property taxes and insurance on time is a reason the loan can become due and payable. HUD also requires the underwriter to calculate projected life expectancy property charges on every HECM, whether a LESA is required or not.
Saxton Mortgage does. A Life Expectancy Set-Aside holds back part of a HECM to pay property taxes and insurance, and you can voluntarily request a fully funded set-aside even when one is not required.
Find out what you qualify for
Tell us about your property taxes, insurance and payment history, and we will check how it fits our program.
Get Pre-Qualified- U.S. Department of Housing and Urban Development, FHA and housing resources
- U.S. Department of Housing and Urban Development, FHA mortgage insurance premiums
Loan amounts, rates, terms, and eligibility are subject to credit approval, asset and income verification, appraisal, and program guidelines. Program availability varies by state. Not all applicants will qualify. Saxton Mortgage, LLC is an Equal Housing Lender.