Florida Reverse Mortgage Blog

A Life Expectancy Set Aside (LESA) is a feature within the reverse mortgage process for those with poor credit or credit issues who would like to reap the benefits a reverse mortgage offers. Designed to safeguard both the borrower and the lender, a LESA sets aside a portion of a borrower’s available equity to cover the ongoing costs associated with the property, such as property taxes and homeowner’s insurance, throughout the borrower’s expected remaining lifetime. This can be particularly beneficial for those considering a Florida reverse mortgage.

How Does a LESA Work?

During the application process for a reverse mortgage, potential borrowers undergo a financial assessment to evaluate their ability to meet the obligations of the loan. This assessment includes looking at income sources, credit history, and living expenses. If the lender determines that the borrower may struggle to keep up with property taxes, homeowner’s insurance, and other property charges, a LESA might be required. The amount set aside depends on the borrower's age and life expectancy, with the funds taken from the total amount the borrower is eligible to receive from the reverse mortgage.

Why Is a LESA Important?

The primary goal of a LESA is to prevent the future risk of loan default due to the borrower's inability to pay obligatory costs, which could ultimately lead to foreclosure. By ensuring these essential expenses are paid, a LESA helps borrowers remain in their home without the stress of managing these critical payments. It acts as a financial buffer, securing the borrower’s housing stability.

Benefits of a LESA

1. Peace of Mind: Borrowers can feel more secure knowing that their essential housing expenses are pre-funded and managed.
2. Loan Security: Helps prevent the risk of default and foreclosure, ensuring that borrowers can continue living in their homes as intended.
3. Budget Management: Simplifies the borrower’s budget, as the major housing costs are already taken care of, allowing them to focus on other living expenses.

Considerations for Borrowers

While a LESA can provide significant benefits, it also reduces the net amount available to the borrower from the reverse mortgage since funds are allocated upfront for future expenses. Borrowers should consider their overall financial strategy and needs when deciding on a reverse mortgage and discuss with their lender whether a LESA is necessary or optional based on their financial assessment.

Selecting a LESA for Convenience

While LESAs are often thought of as a requirement for those with poor credit that are seeking a reverse mortgage, they can also be optionally selected by a homeowner seeking the convenience of not having to worry about homeowners insurance or property tax payments. Suppose you have good credit but the idea of managing large annual or semi-annual payments such as property taxes and homeowner’s insurance seems daunting, particularly on a fixed income in retirement. A LESA provides a structured solution within the Florida reverse mortgage process, ensuring that these payments are never missed and securing the homeowner’s place in their home.