Reverse Mortgage Income Requirements
Every HECM includes a financial assessment. The lender counts income that is likely to continue for at least three years, subtracts your monthly expenses, and compares what is left with a HUD standard for your family size and region.
Quick answer
Yes, through a financial assessment. On the HECMs Saxton Mortgage offers, HUD requires every borrower’s credit, income, assets and property charges to be documented and verified, and residual income is calculated. If residual income falls short, a set-aside for property taxes and insurance (a Life Expectancy Set-Aside) or documented compensating factors can still allow approval. If neither can cover the shortfall, the loan cannot be approved.
Income that can count
HUD’s financial assessment tests residual income by family size and region, not credit scores.
- Social Security retirement income and SSI. The lender verifies it with one of these: tax returns, your most recent bank statement showing the deposit, an SSA benefits or budget letter, or Form SSA-1099.
- Pension income from a former employer, documented as received and likely to continue for at least three years. A city, state or federal government pension is treated as continuing.
- Recurring IRA or 401(k) distributions that are likely to continue for three years. If the amount changes, the lender averages it over two years, or over the time you have received it if that is shorter.
- Disability benefits from the SSA, the VA or a private insurer, unless they are due to expire within three years. The lender may never ask about the nature of your disability or medical condition.
- Wages, including part-time work, with your most recent two years of employment and income verified. If you went back to work after more than two years of retirement, that income can count once you have been in the job at least six months, plan to keep working and your employer expects you to continue.
- Interest and dividends, an annuity whose agreement guarantees it will continue for the first three years of the HECM, and foreign income you have received for the past two years that is likely to continue.
Social Security and SSI
Pensions from past employers
IRA and 401(k) distributions
Disability benefits that continue
Wages and part-time work
Investment and annuity income
How Residual Income Works
FHA measures HECM income by what is left each month after expenses. That amount is called residual income, and it must meet a minimum set by HUD.
The lender starts with effective income: income that is legally derived, reported on your tax returns when required, and reasonably likely to continue through at least the first three years of the HECM. Nontaxable income, such as the nontaxable part of Social Security, is added in but not grossed up, because the analysis already counts taxes as an expense. Next come monthly expenses, including federal and state income taxes and FICA, property charges on the home, estimated utilities and maintenance, installment and revolving debt, costs on any other property you own, alimony and child support, and payments on judgments or bankruptcy plans. Utilities and maintenance are estimated with a Department of Veterans Affairs formula based on the home’s living area. Property taxes that are deferred or waived may be left out. If a lien such as your current mortgage is paid off at closing, its payment is not counted.
What is left is your residual income, and it must at least equal the amount HUD sets for your family size and region. Family size counts everyone in the household, related or not, including a non-borrowing spouse. A household member who is not a borrower can be left out only if they authorize the lender to verify their income and expenses and their own residual income meets the one-person standard. HUD divides the country into four regions, and California is in the West. If one or more income sources already meet the standard, the lender does not need to document the rest.
Savings can help you meet the standard. Liquid assets, meaning assets you can turn into cash within one year without an IRS penalty, can be converted into monthly imputed income by reducing taxable assets for taxes and spreading the value over the remaining life expectancy of the youngest borrower. Money you must bring to closing is subtracted first, and the same asset cannot be counted twice. A joint account with someone who is not on the loan can count if you document unrestricted access to it. For how your credit and property tax history are reviewed, see our reverse mortgage credit requirements page.
Why choose Saxton to review your income
Social Security, pensions and even savings accounts can feed the HECM residual income test.
Award Letters Can Settle It
If your Social Security Notice of Award has no end date, the lender must treat that income as likely to continue and may not ask you for more proof that it will.
Future Benefits Count Later
If your award letter shows a future start date, that income counts only from that date. The lender uses the current amount of Social Security you receive.
Government Pensions Are Presumed
A pension from a city, state or federal government is treated as continuing. A private pension still needs proof it will continue for at least three years.
One Source Can Be Enough
If one or more income sources already meet the residual income standard, the lender does not need to document your other income.
Leftover Proceeds Can Help
HECM money left after paying the required obligations at closing can be treated as an asset and used in the residual income calculation.
Non-Cash Benefits Can Count
Benefits such as SNAP or energy assistance can count if you receive them now, or have an award letter and they start within 60 days, among other conditions. Benefits you only plan to apply for do not count.
Hear From Homeowners Like You
Frequently Asked Questions
Straight answers about income and the HECM.
Yes, through a financial assessment. On the HECMs Saxton Mortgage offers, HUD requires every borrower’s credit, income, assets and property charges to be documented and verified, and residual income is calculated. If residual income falls short, a set-aside for property taxes and insurance (a Life Expectancy Set-Aside) or documented compensating factors can still allow approval. If neither can cover the shortfall, the loan cannot be approved.
Yes, Social Security counts as effective income for a HECM, alongside pensions and 401(k) distributions. HUD accepts one of four proofs: tax returns, a recent bank statement showing the deposit, an SSA benefits letter, or your SSA-1099. The income must be likely to continue through at least the first three years of the HECM*.
Residual income for a HECM is total monthly effective income minus total monthly expenses, and it must meet HUD’s table for your family size and region. In the West, that table sets $589 for one person and $998 for two*.
A HECM residual income shortfall can be offset with compensating factors; without them, HUD requires a partially funded set-aside. If that set-aside would exceed 75 percent of projected property charges, a fully funded one is required instead. When even that leaves you well short, the HECM cannot be approved*.
A partially funded LESA reserves part of your HECM principal limit and pays it to you semiannually so you can cover taxes and homeowners insurance. You stay responsible for paying every property charge on time, and at one program this set-aside is offered on adjustable-rate HECMs only*.
An eligible non-borrowing spouse’s income can count as a HECM compensating factor when the spouse has drawn it for at least half a year, it will likely continue, and the spouse signs the IRS form for tax returns. Citing it that way keeps the spouse in your family size*.
Yes, savings and retirement accounts can become imputed HECM income through asset dissipation. HUD counts liquid assets you could convert to cash within a year without an IRS penalty, reduces taxable ones by your tax rate or 15 percent, whichever is less, and divides the total by the youngest borrower’s remaining life expectancy in months*.
If your income changes before a HECM closes, the lender must re-evaluate the loan, including the effective income and residual income analysis. Income documents also expire after 120 days, measured at disbursement, so a delay can mean updated paperwork*.
Find out what you qualify for
Tell us about your home, who lives with you and where your income comes from, and we will walk through how the financial assessment may look for you.
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.