Financial Fact Finding

Financial Fact Finding Chapter Links

How To Fact Find | Tax Bracket | Income | Expenses & Liabilities | Assets | Retirement Accounts | Estate Planning | Social Security | Medicare vs. Medicad | The Three Buckets | Structuring Payments 

 While most reverse mortgage loan originators are not licensed retirement planners, it is important that you find out the particulars of your client’s financial situation. This fact finding is not part of the HECM Financial Assessment (underwriting guidelines), but to help you better understand where the homeowner is today and where they could be after taking a reverse mortgage. After all, you are recommending one of the largest financial decisions they will ever make for retirement. You may also be working with your client’s financial advisor, so it’s best to be somewhat knowledgeable of their unique situation.Use this powerful sales tool to help them understand the effect a reverse mortgage will have on their current monthly cash flow and cash reserves.

Financial Interview Tool (FIT) Borrower preparation worksheet. Download (PDF)

Financial Fact-Finding* cash flow comparison Excel spread sheet. Download (Excel)
*(check with your company's compliance policies before using with the public)

While reverse mortgages are not for all seniors, they benefit most if properly structured. Before we put the cart before the horse let’s find out how you can make an educated recommendation to your client and then how to structure the payment terms of the reverse mortgage.


How to Fact Find

Start slow and easy. Don’t jump right into “just the facts”. This is not an interrogation, but a gentle uncovering of pertinent facts. After the small talk and close you will be taking the application. The standard residential loan application (1009) covers the most basic of financial information such as real estate assets, income and monthly expenses. The following fact-finding should be interwoven into your questions to complete the application. Take additional information down on a notepad or your own customized sheet.  Back to top 


Tax Bracket

One of the first questions to ask your client is “do you currently pay federal income tax”? If they do, follow up asking if they itemize their deductions. While most seniors do not, the few that do may be deducting home interest payments and thus would not be eligible for this write-off if they obtained a reverse mortgage. If this is the case they may want to reconsider eliminating this deduction or weigh the increased income of the reverse mortgage against the increase in taxes paid without the deduction. In most cases the income gained is far greater than any increase in taxes. To assist you in the field a one page current tax table sheet is invaluable. It will show you standard deductions, tax bracket percentages and IRA distributions. Back to top



What are the sources of your clients income? Are they collecting monthly payments on a private note for a property? If so, when does that note mature and the income stop? Are they drawing from their retirement account or taking required minimum distributions? Be sure to note income separately for each spouse and the specific source.

If one spouse is receiving pension income, ask what the survivor’s benefit is. The survivor’s benefit is the percentage of the pension income the spouse will receive in the event the pension holder predeceases his/her spouse. Knowing this can help you build a clear picture of future income reduction later in their retirement.

Having a clear understanding of Social Security payments will help project future income should one spouse predecease the other. If a spouse dies the other spouse begins receiving 100% of the higher of the two spouses Social Security check amounts. While this may sound generous on the surface, in reality it means a substantial decrease in household income making. You must calculate this reduction of income and compare it to their current situation. This illustrates how a reverse mortgage can offset this future liability.

If any income is coming from Medi-Cal / Medicaid or SSI disability income, please read the section “Medicaid / Medi-Cal”.    Back to top 


Expenses & Liabilities

In most cases your clients know their total monthly expenses. Most important, you need to confirm their existing mortgage balance if any. This should already be on your reverse mortgage product comparison sheet. Find out what the total mortgage payment is each month and what amount represents the principal and interest being paid. Why? This will give you the net increase in monthly cash flow with the mortgage paid off.

Most may not want to go over each line item in their budget. That being said you should find out if they have any non-preferred debt. Non-preferred debt is any debt whose payments are not tax deductible. This would include credit cards, store cards, auto, boat and RV loans. Get the monthly payments and total balances owing. There may be an opportunity to pay off some of these nasty debts! It’s exciting just how a reverse mortgage will help! Back to top 



Basically, what does your client own that has value? Their primary residence, secondary home(s), checking and savings accounts, mutual funds, CDs, and any retirement accounts. Note each asset and its value. If your client has more than sufficient assets you may want to uncover their motivation in obtaining a reverse mortgage. Back to top 


Retirement Accounts

Retirement accounts would be any “qualified” accounts. Qualified with whom? The IRS. Retirement accounts include Individual Retirement Accounts (IRAs), 401(k) profit sharing, 403(b) profit sharing, Tax Sheltered Annuities (TSAs) and Roth IRAs. Contributions during the accumulation phase are tax deductible reducing taxable income and later in retirement any withdrawals are fully taxable as taken.

Note the present market value of each account and who owns it. If your clients are over 70 ½ they most likely are taking required minimum distributions (RMDs), the amount the IRS requires they take from their qualified retirement accounts. These distributions are fully taxed as regular income and are reported each year.

While not advisable, in some cases your client may be forced to use a portion of their retirement account to come in with money at closing. This is done is hardship cases where the home is jeopardized by an increasing mortgage payment or medical expenses. Advise your client to seek counsel from a reputable CPA to determine the tax liability in using these accounts. Back to top


Estate Planning

There are basically three choices when it comes to estate planning: Do nothing, draft a last will and testament or create a revocable living trust. As a homeowner, the first two will most likely result in probate, the legal process each state has for settling one’s estate. However, a revocable living trust, properly drawn, will avoid the unnecessary time and expense of probate. Always ask what estate plan is in place. Many lenders now require a complete copy of the trust to ensure the lender backing the reverse mortgage is protected.

Estate planning is important, but takes on more urgency for lenders holding a reverse mortgage. After the last borrower dies, the heirs have up to one year to settle the estate. If probate is required much of this time will be consumed with legal proceedings. Thus, it is recommended that you advise your clients to seek legal counsel in obtaining a proper estate plan that will avoid probate. Back to top 


Social Security

Founded in 1935, Social Security or the Federal Old-Age, Survivors, and Disability Insurance (OASDI) program provides retirees 65 and older retirement income. Income from a reverse mortgage does not affect Social Security because benefits are received regardless of the retiree’s income.

The primary concern for married clients is the reduction of income with the passing of one spouse. If a spouse dies the other spouse begins receiving 100% of the higher Social Security check amounts. Back to top 


Medicare vs. Medicaid / Medi-Cal

Although similar in name, there is a world of difference between Medicare and Medicaid (Medi-Cal for California). Medicare is Federally funded through insurance premium contributions deducted from Social Security checks and other sources. This program is considered a health insurance program.

Medicaid on the other hand is a welfare or needs based program with eligibility based on income. Before taking an application for a reverse mortgage ask if your client is receiving Medicaid or Medi-Cal. Many on Medicaid are seeking to obtain a reverse mortgage for the purposes of eliminating their existing mortgage payment. This will generate positive cash flow each month and is not prohibited. However, the remaining funds must not be taken from the line of credit or used incorrectly or monthly benefits can be jeopardized. Reverse mortgage borrowers must know the consequences and limitations for monthly income and should seek the advice of a qualified professional. Back to top 


The Three Buckets

When assessing your clients retirement needs oftentimes a simple analogy is useful. The simplest is the three buckets. The first bucket is monthly expenses or day to day needs. This would include utilities, debt payments, prescriptions, groceries and entertainment. Those on a fixed income or with monthly deficits will find the reverse mortgage a great way to fund these expenses. Many find a lifetime monthly income (tenure payment) desirable for its predictability and stability.

The second bucket is for emergencies. The roof needs replacement, the A/C goes out or the car needs repairs. Even with a line of credit in the reverse mortgage it is recommended an external savings account be available for such needs. Five to six times your client's monthly income is a good amount for the “emergency bucket”. The remaining line of credit sits ready for future needs, but the savings account can be used immediately without waiting for a funds transfer from the line of credit.

The third bucket is for “retirement”. This category includes, retirement accounts, money or investments that have been unused for years and stocks and/or equities. Also included would be any source of funds used on an ongoing basis for income in retirement. A payment stream from a reverse mortgage would qualify as retirement income. Back to top 


Structuring Payment

Having done a thorough fact finder of your client’s financial profile, pre-planning the distribution of money from the reverse mortgage is warranted. One size does not fit all.

Keep in mind if your client is above the current 60% threshold of the gross principal limit (total funds available).

*The initial upfront FHA MIP (mortgage insurance premium) is .5 percent for initial disbursements below 60% of the principal limit (available funds), and jumps to 2.5 percent for disbursements that exceed 60%

In some situations the borrower may benefit by coming in with cash at closing to lower the amount borrowed below the 60% threshold for a substantial savings in upfront MIP charges. The ongoing monthly charges for FHA insurance remain 1.25% of the balance regardless.

If your clients need additional monthly income, find out how much. Perhaps a plan for $400 monthly income, elimination of the existing mortgage payment with the balance in the line of credit is a good solution. A hybrid plan utilizing a partial lump sum withdrawal, monthly income and the balance in the line of credit is useful in keeping options open for the borrower. Also, reverse mortgage holders may change their payment structure later to suit their needs. Back to top