FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly Expense Analysis (04/10/2025)

hud-4000-1-ii-d-monthly-expense-analysis

FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly Expense Analysis (04/10/2025).

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  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly Expense Analysis (04/10/2025)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly Expense Analysis (04/10/2025).
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      paragraph_quote: 'd. Monthly Expense Analysis (04/10/2025) Monthly Expense Analysis refers to the analysis of the Borrower’s monthly expenses required to calculate Residual Income. i. Monthly Expenses The Mortgagee must determine the Borrower’s monthly expenses for the following: • federal and state income taxes; • Federal Insurance Contributions Act (FICA); • Property Charges for the subject Property; • estimated utility and maintenance expenses; • installment account payments; • any other owned property mortgage obligations (debt and Property Charges); • revolving credit account payments; • Alimony and Child Support payments; • Judgments under payment plans against the Borrower; and • payments required under any bankruptcy plans. Where the Borrower benefits from federal, state, or local benefit programs that reduce Borrower expenses, the reduced amounts may be used to calculate monthly expenses, provided that the Mortgagee complies with the documentation requirements of Government Assistance Non-Cash Benefits Income. ii. Liens Paid Off at Closing When a lien against the Property is paid off at closing, the monthly payment associated with that lien is not included in the Borrower’s monthly expenses. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 630 Last Revised: 11/26/2025 iii. General Liabilities and Debts (A) Standard The Mortgagee must determine the Borrower’s monthly expenses by reviewing all debts listed on the credit report, Fannie Mae Form 1009, part VI of the Uniform Residential Loan Application (URLA), and other required documentation. All applicable monthly expenses must be considered in the monthly expense analysis. Closed-end debts do not have to be included if they will be paid off within 10 months and the cumulative payments of all such debts are less than or equal to 5 percent of the Borrower’s gross monthly income. The Borrower may not pay down the balance in order to meet the 10-month requirement. Accounts for which the Borrower is an authorized user must be included in a Borrower’s monthly expenses unless the Mortgagee can document that the primary account holder has made all required payments on the account for the previous 12 months. If less than three payments have been required on the account in the previous 12 months, the payment amount must be included in the Borrower’s monthly expenses. Negative income must be subtracted from the Borrower’s gross monthly income, and not treated as a recurring monthly liability unless otherwise noted. Loans secured against deposited funds, where repayment may be obtained through extinguishing the asset and these funds are not included in calculating the Borrower’s assets, are not required to be included in monthly expenses. (B) Required Documentation The Mortgagee must document that the funds used to pay off debts prior to closing came from an acceptable source and the Borrower did not incur new debts that were not included in the monthly expenses. (C) Undisclosed Debt and Inquiries (1) Standard When a debt or obligation is revealed during the application process that was not listed on the mortgage application and/or credit report, the Mortgagee must: • verify the actual monthly payment amount; • include the payment amount in the agreement in the Borrower’s monthly liabilities and debt; and • determine that any unsecured funds borrowed were not/will not be used for the Borrower’s settlement requirements. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 631 Last Revised: 11/26/2025 The Mortgagee must obtain a written explanation from the Borrower for all inquiries shown on the credit report that were made in the last 90 Days. (2) Required Documentation The Mortgagee must document all undisclosed debt and support for its analysis of the Borrower’s debt. (D) Federal Debt (1) Definition Federal Debt refers to debt owed to the federal government for which regular payments are being made. (2) Standard The amount of the required payment must be included in the calculation of the Borrower’s monthly expenses. (3) Required Documentation The Mortgagee must include documentation from the federal agency evidencing the repayment agreement and verification of payments made, if applicable. (E) Alimony, Child Support, and Maintenance (1) Definition Alimony, Child Support, and Maintenance are court-ordered or otherwise agreed upon payments. (2) Standard For Alimony, if the Borrower’s income was not reduced by the amount of the monthly alimony obligation in the Mortgagee’s calculation of the Borrower’s gross income, the Mortgagee must verify and include the monthly obligation in its calculation of the Borrower’s monthly expenses. Child Support and Maintenance are to be treated as a recurring liability and the Mortgagee must include the monthly obligation in the Borrower’s liabilities and monthly expenses. (3) Required Documentation The Mortgagee must obtain the official signed divorce decree, separation agreement, maintenance agreement, or other legal order. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 632 Last Revised: 11/26/2025 The Mortgagee must also obtain the Borrower’s pay stubs covering no less than 28 consecutive Days to verify whether the Borrower is subject to any order of garnishment relating to the Alimony, Child Support, and Maintenance. (4) Calculation of Monthly Obligation The Mortgagee must calculate the Borrower’s monthly obligation from the greater of: • the amount shown on the most recent decree or agreement establishing the Borrower’s payment obligation; or • the monthly amount of the garnishment. (F) Deferred Obligations (1) Definition Deferred Obligations (excluding Student Loans) refer to liabilities that have been incurred but where payment is deferred or has not yet commenced, including accounts in forbearance. (2) Standard The Mortgagee must verify and include deferred obligations in the calculation of the Borrower’s monthly expenses. (3) Required Documentation The Mortgagee must obtain written documentation of the deferral of the liability from the creditor and evidence of the outstanding balance and terms of the deferred liability. The Mortgagee must obtain evidence of the actual monthly payment obligation, if available. (4) Calculation of Monthly Obligation The Mortgagee must use the actual monthly payment to be paid on a deferred liability, whenever available. If the actual monthly payment is not available for installment debt, the Mortgagee must utilize the terms of the debt or 5 percent of the outstanding balance to establish the monthly payment. (G) Student Loans (1) Definition Student Loan refers to liabilities incurred for educational purposes. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 633 Last Revised: 11/26/2025 (2) Standard The Mortgagee must include all Student Loans in the Borrower’s monthly expenses, regardless of the payment type or status of payments. (3) Required Documentation If the payment used for the monthly obligation is less than the monthly payment reported on the Borrower’s credit report, the Mortgagee must obtain written documentation of the actual monthly payment, the payment status, and evidence of the outstanding balance and terms from the creditor or student loan servicer. The Mortgagee may exclude the payment amount from the monthly debt calculation where written documentation from the student loan program, creditor, or student loan servicer indicates that the loan balance has been forgiven, canceled, discharged, or otherwise paid in full. (4) Calculation of Monthly Obligation For outstanding Student Loans, regardless of the payment status, the Mortgagee must use: • the payment amount reported on the credit report or the actual documented payment, when the payment amount is above zero; or • 0.5 percent of the outstanding loan balance, when the monthly payment reported on the Borrower’s credit report is zero. Exception Where a student loan payment has been suspended in accordance with COVID-19 emergency relief, the Mortgagee may use the payment amount reported on the credit report or the actual documented payment prior to suspension, when that payment amount is above $0. (H) Installment Loans (1) Definition Installment Loans (excluding Student Loans) refer to loans, not secured by real estate, that require the periodic payment of Principal and Interest (P&I). A loan secured by an interest in a timeshare must be considered an Installment Loan. (2) Standard The Mortgagee must include the monthly payment shown on the credit report, loan agreement, or payment statement to calculate the Borrower’s monthly expenses. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 634 Last Revised: 11/26/2025 If the credit report does not include a monthly payment for the loan, the Mortgagee must use the amount of the monthly payment shown in the loan agreement or payment statement. (3) Required Documentation If the monthly payment shown on the credit report is utilized to calculate the monthly expenses, no further documentation is required. If the credit report does not include a monthly payment for the loan, or the payment reported on the credit report is greater than the payment on the loan agreement or payment statement, the Mortgagee must use the loan agreement or payment statement to document the amount of the monthly payment. If the credit report, loan agreement, or payment statement shows a deferred payment arrangement for an Installment Loan, refer to the Deferred Obligations section. (I) Revolving Charge Accounts (1) Definition A Revolving Charge Account refers to a credit arrangement that requires the Borrower to make periodic payments but does not require full repayment by a specified point of time. (2) Standard The Mortgagee must include the monthly payment shown on the credit report for the Revolving Charge Account. Where the credit report does not include a monthly payment for the account, the Mortgagee must use the payment shown on the current account statement or 5 percent of the outstanding balance. (3) Required Documentation The Mortgagee must use the credit report to document the terms, balance, and payment amount on the account, if available. Where the credit report does not reflect the necessary information on the charge account, the Mortgagee must obtain a copy of the most recent charge account statement or use 5 percent of the outstanding balance to document the monthly payment. (J) 30-Day Accounts (1) Definition A 30-Day Account refers to a credit arrangement that requires the Borrower to pay off the outstanding balance on the account every month. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 635 Last Revised: 11/26/2025 (2) Standard The Mortgagee must verify the Borrower paid the outstanding balance in full on every 30-Day Account each month for the past 12 months. 30-Day Accounts that are paid monthly are not included in the Borrower’s monthly expenses. If the credit report reflects any late payments in the last 12 months, the Mortgagee must utilize 5 percent of the outstanding balance as the Borrower’s monthly debt to be included in the monthly expenses. (3) Required Documentation The Mortgagee must use the credit report to document that the Borrower has paid the balance on the account monthly for the previous 12 months. The Mortgagee must use the credit report to document the balance and must document that funds are available to pay off the balance. (K) Business Debt in Borrower’s Name (1) Definition Business Debt in Borrower’s Name refers to liabilities reported on the Borrower’s personal credit report, but payment for the debt is attributed to the Borrower’s business. (2) Standard When business debt is reported on the Borrower’s personal credit report, the debt must be included in the monthly expenses, unless the Mortgagee can document that the debt is being paid by the Borrower’s business, and the debt was considered in the cash flow analysis of the Borrower’s business. The debt is considered in the cash flow analysis where the Borrower’s business Tax Returns reflect a business expense related to the obligation, equal to or greater than the amount of payments documented as paid out of company funds. Where the Borrower’s business Tax Returns show an interest expense related to the obligation, only the interest portion of the debt is considered in the cash flow analysis. (3) Required Documentation When a self-employed Borrower states debt appearing on their personal credit report is being paid by their business, the Mortgagee must obtain documentation that the debt is paid out of company funds and that the debt was considered in the cash flow analysis of the Borrower’s business. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 636 Last Revised: 11/26/2025 (L) Disputed Derogatory Credit Accounts (1) Definition Disputed Derogatory Credit Accounts refer to disputed Charge Off Accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months. (2) Standard If the Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts, the Mortgagee must include a monthly payment in the Borrower’s monthly expenses calculation. The following items are excluded from the cumulative balance: • disputed medical accounts; and • disputed derogatory credit resulting from identity theft, credit card theft, or unauthorized use. Disputed Derogatory Credit Accounts of an NBS in a community property state are not included in the cumulative balance. (M) Non-derogatory Disputed Account and Disputed Accounts Not Indicated on the Credit Report (1) Definition Non-derogatory Disputed Accounts include the following types of accounts: • disputed accounts with zero balance; • disputed accounts with late payments aged 24 months or greater; or • disputed accounts that are current and paid as agreed. (2) Standard If a Borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the Mortgagee must analyze the effect of the disputed accounts on the Borrower’s ability to repay the loan. If the dispute results in the Borrower’s monthly debt payments utilized in computing the monthly expenses being less than the amount indicated on the credit report, the Borrower must provide documentation of the lower payments. (N) Contingent Liabilities (1) Definition A Contingent Liability is a liability that may result in the obligation to repay only where a specific event occurs. For example, a contingent liability exists when an II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 637 Last Revised: 11/26/2025 individual can be held responsible for the repayment of a debt if another legally obligated party defaults on the payment. Contingent liabilities may include cosigner liabilities and liabilities resulting from a mortgage assumption without release of liability. (2) Standard The Mortgagee must include monthly payments on contingent liabilities in the calculation of the Borrower’s monthly expenses unless the Mortgagee verifies that there is no possibility that the debt holder will pursue debt collection against the Borrower, should the other party default or the other legally obligated party has made 12 months of timely payments. When a contingent liability is created by a divorce decree or other court order, evidence that the other legally obligated party has made 12 months of timely payments is not required. (3) Required Documentation (a) Mortgage Assumptions The Mortgagee must obtain the agreement creating the contingent liability or assumption agreement and deed showing transfer of title out of the Borrower’s name. (b) Cosigned Liabilities If the cosigned liability is not included in the monthly obligation, the Mortgagee must obtain documentation to evidence that the other party to the debt has been making regular on-time payments during the previous 12 months. (c) Court-Ordered Divorce Decree or Other Court Order The Mortgagee must obtain a copy of the divorce decree or other court order ordering the spouse or other legally obligated party to make payments. (4) Calculation of Monthly Obligation The Mortgagee must calculate the monthly payment on the contingent liability based on the terms of the agreement creating the contingent liability. (O) Collection Accounts (1) Definition A Collection Account refers to a Borrower’s loan or debt that has been submitted to a collection agency by a creditor. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 638 Last Revised: 11/26/2025 (2) Standard If the credit reports used in the analysis show cumulative outstanding collection account balances of $2,000 or greater, the Mortgagee must: • verify that the debt is paid in full at the time of or prior to settlement using an acceptable source of funds; • verify that the Borrower has made payment arrangements with the creditor; or • if a payment arrangement is not available, calculate the monthly payment using 5 percent of the outstanding balance of each collection and include the monthly payment in the Borrower’s monthly expenses. (3) Required Documentation The Mortgagee must provide the following documentation: • evidence of payment in full, if paid prior to settlement; • the payoff statement, if paid at settlement; or • the payment arrangement with creditor, if not paid prior to or at settlement. If the Mortgagee uses 5 percent of the outstanding balance, no documentation is required. (P) Charge Off Accounts (1) Definition Charge Off Account refers to a Borrower’s loan or debt that has been written off by the creditor. (2) Standard Charge Off Accounts do not need to be included in the Borrower’s monthly expenses. (Q) Obligations Not Considered Debt Obligations not considered debt include: • medical collections; • automatic deductions from savings, when not associated with another type of obligation; • retirement contributions, such as 401(k) accounts; • collateralized loans secured by depository accounts; • child care; • commuting costs; • union dues; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 639 Last Revised: 11/26/2025 • insurance, other than property insurance; • open accounts with zero balances; and • voluntary deductions, when not associated with another type of obligation. (R) Private Savings Clubs (1) Definition Private Savings Club refers to a non-traditional method of saving by making deposits into a member-managed resource pool. (2) Standard If the Borrower is obligated to continue making ongoing contributions under the pooled savings agreement, this obligation must be counted in the Borrowers’ monthly expenses. The Mortgagee must verify and document the establishment and duration of the Borrower’s membership in the club and the amount of the Borrower’s required contribution to the club. (3) Required Documentation The Mortgagee must also obtain the club’s account ledgers and receipts, and verification from the club treasurer that the club is still active. (S) Federal, State, and Local Income Taxes (1) Definition Federal, State, and Local Income Taxes refer to taxes imposed by the federal, state, and local governments on the Borrower’s Effective Income. (2) Standard Federal, state, and local income taxes must be included in monthly expenses. (3) Required Documentation If available, Mortgagees must use federal, state, and local tax returns from the most recent tax year to document federal, state, and local income taxes. If tax returns are not available, Mortgagees may rely upon current pay stubs and tax tables. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 640 Last Revised: 11/26/2025 (T) Utilities and Maintenance Expenses Mortgagees must rely on the formula established by Department of Veterans Affairs (VA) for estimated maintenance and utilities in all states. Mortgagees should multiply the living area of the Property (square feet) by $0.14. Mortgagees must use the figure for square feet from the Improvements section on page 1 of the appraisal under Square Feet of Gross Living Area Above Grade. iv. Property Charges (A) Property Taxes Mortgagees must document the amount of current year property taxes, or personal property taxes for Manufactured Homes not taxed as real estate, due from all taxing authorities. Verification of real estate property taxes may be in the form of written statements or online printouts from the taxing authorities, or copies of bills. Verification of personal property taxes for Manufactured Homes not taxed as real estate may be in the form of online printouts from the taxing authority or through copies of bills and canceled checks or other equivalent proof of payment obtained from the Borrower or taxing authority. If the current year’s property tax bill is not available, Mortgagees shall calculate monthly expenses based on 1.04 percent of the prior year’s tax bill. Where property taxes are deferred or waived, the amount of the property taxes may be excluded from monthly expenses. (B) Hazard Insurance Mortgagees must obtain the current year’s declaration sheet of the insurance policy. If the current year’s declaration sheet is not available, Mortgagees shall calculate monthly expenses based on 1.04 percent of the prior year’s premium. Where no Hazard Insurance policy was previously in place, Mortgagees shall base the cost of Hazard Insurance upon the insurance quote provided to the Borrower for the cost of Hazard Insurance under the HECM. (C) Flood Insurance Mortgagees must obtain the current year’s declaration sheet of the insurance policy. If the current year’s declaration sheet is not available, Mortgagees shall calculate monthly expenses based on 1.04 percent of the prior year’s premium. Where no Flood Insurance policy was previously in place, Mortgagees shall base the cost of Flood Insurance upon the insurance quote provided to the Borrower for the cost of Flood Insurance under the HECM. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 641 Last Revised: 11/26/2025 (D) Condominium, PUD, and HOA Fees Mortgagees must obtain from the appraisal, or from a written statement from the association or its management agent, documentation on the amount of the monthly fees. (E) Ground Rents Mortgagees must obtain from the deed, the lessor, or its management agent a written statement documenting the amount of the ground rent payment. (F) Other Assessments Mortgagees must obtain from the party levying the assessment or its management agent a written statement documenting the amount of any other assessments.'

Verbatim regulatory text (1)

Verbatim provisions from FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly Expense Analysis (04/10/2025) — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.

FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly Expense Analysis (04/10/2025)

d. Monthly Expense Analysis (04/10/2025) Monthly Expense Analysis refers to the analysis of the Borrower’s monthly expenses required to calculate Residual Income. i. Monthly Expenses The Mortgagee must determine the Borrower’s monthly expenses for the following: • federal and state income taxes; • Federal Insurance Contributions Act (FICA); • Property Charges for the subject Property; • estimated utility and maintenance expenses; • installment account payments; • any other owned property mortgage obligations (debt and Property Charges); • revolving credit account payments; • Alimony and Child Support payments; • Judgments under payment plans against the Borrower; and • payments required under any bankruptcy plans. Where the Borrower benefits from federal, state, or local benefit programs that reduce Borrower expenses, the reduced amounts may be used to calculate monthly expenses, provided that the Mortgagee complies with the documentation requirements of Government Assistance Non-Cash Benefits Income. ii. Liens Paid Off at Closing When a lien against the Property is paid off at closing, the monthly payment associated with that lien is not included in the Borrower’s monthly expenses. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 630 Last Revised: 11/26/2025 iii. General Liabilities and Debts (A) Standard The Mortgagee must determine the Borrower’s monthly expenses by reviewing all debts listed on the credit report, Fannie Mae Form 1009, part VI of the Uniform Residential Loan Application (URLA), and other required documentation. All applicable monthly expenses must be considered in the monthly expense analysis. Closed-end debts do not have to be included if they will be paid off within 10 months and the cumulative payments of all such debts are less than or equal to 5 percent of the Borrower’s gross monthly income. The Borrower may not pay down the balance in order to meet the 10-month requirement. Accounts for which the Borrower is an authorized user must be included in a Borrower’s monthly expenses unless the Mortgagee can document that the primary account holder has made all required payments on the account for the previous 12 months. If less than three payments have been required on the account in the previous 12 months, the payment amount must be included in the Borrower’s monthly expenses. Negative income must be subtracted from the Borrower’s gross monthly income, and not treated as a recurring monthly liability unless otherwise noted. Loans secured against deposited funds, where repayment may be obtained through extinguishing the asset and these funds are not included in calculating the Borrower’s assets, are not required to be included in monthly expenses. (B) Required Documentation The Mortgagee must document that the funds used to pay off debts prior to closing came from an acceptable source and the Borrower did not incur new debts that were not included in the monthly expenses. (C) Undisclosed Debt and Inquiries (1) Standard When a debt or obligation is revealed during the application process that was not listed on the mortgage application and/or credit report, the Mortgagee must: • verify the actual monthly payment amount; • include the payment amount in the agreement in the Borrower’s monthly liabilities and debt; and • determine that any unsecured funds borrowed were not/will not be used for the Borrower’s settlement requirements. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 631 Last Revised: 11/26/2025 The Mortgagee must obtain a written explanation from the Borrower for all inquiries shown on the credit report that were made in the last 90 Days. (2) Required Documentation The Mortgagee must document all undisclosed debt and support for its analysis of the Borrower’s debt. (D) Federal Debt (1) Definition Federal Debt refers to debt owed to the federal government for which regular payments are being made. (2) Standard The amount of the required payment must be included in the calculation of the Borrower’s monthly expenses. (3) Required Documentation The Mortgagee must include documentation from the federal agency evidencing the repayment agreement and verification of payments made, if applicable. (E) Alimony, Child Support, and Maintenance (1) Definition Alimony, Child Support, and Maintenance are court-ordered or otherwise agreed upon payments. (2) Standard For Alimony, if the Borrower’s income was not reduced by the amount of the monthly alimony obligation in the Mortgagee’s calculation of the Borrower’s gross income, the Mortgagee must verify and include the monthly obligation in its calculation of the Borrower’s monthly expenses. Child Support and Maintenance are to be treated as a recurring liability and the Mortgagee must include the monthly obligation in the Borrower’s liabilities and monthly expenses. (3) Required Documentation The Mortgagee must obtain the official signed divorce decree, separation agreement, maintenance agreement, or other legal order. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 632 Last Revised: 11/26/2025 The Mortgagee must also obtain the Borrower’s pay stubs covering no less than 28 consecutive Days to verify whether the Borrower is subject to any order of garnishment relating to the Alimony, Child Support, and Maintenance. (4) Calculation of Monthly Obligation The Mortgagee must calculate the Borrower’s monthly obligation from the greater of: • the amount shown on the most recent decree or agreement establishing the Borrower’s payment obligation; or • the monthly amount of the garnishment. (F) Deferred Obligations (1) Definition Deferred Obligations (excluding Student Loans) refer to liabilities that have been incurred but where payment is deferred or has not yet commenced, including accounts in forbearance. (2) Standard The Mortgagee must verify and include deferred obligations in the calculation of the Borrower’s monthly expenses. (3) Required Documentation The Mortgagee must obtain written documentation of the deferral of the liability from the creditor and evidence of the outstanding balance and terms of the deferred liability. The Mortgagee must obtain evidence of the actual monthly payment obligation, if available. (4) Calculation of Monthly Obligation The Mortgagee must use the actual monthly payment to be paid on a deferred liability, whenever available. If the actual monthly payment is not available for installment debt, the Mortgagee must utilize the terms of the debt or 5 percent of the outstanding balance to establish the monthly payment. (G) Student Loans (1) Definition Student Loan refers to liabilities incurred for educational purposes. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 633 Last Revised: 11/26/2025 (2) Standard The Mortgagee must include all Student Loans in the Borrower’s monthly expenses, regardless of the payment type or status of payments. (3) Required Documentation If the payment used for the monthly obligation is less than the monthly payment reported on the Borrower’s credit report, the Mortgagee must obtain written documentation of the actual monthly payment, the payment status, and evidence of the outstanding balance and terms from the creditor or student loan servicer. The Mortgagee may exclude the payment amount from the monthly debt calculation where written documentation from the student loan program, creditor, or student loan servicer indicates that the loan balance has been forgiven, canceled, discharged, or otherwise paid in full. (4) Calculation of Monthly Obligation For outstanding Student Loans, regardless of the payment status, the Mortgagee must use: • the payment amount reported on the credit report or the actual documented payment, when the payment amount is above zero; or • 0.5 percent of the outstanding loan balance, when the monthly payment reported on the Borrower’s credit report is zero. Exception Where a student loan payment has been suspended in accordance with COVID-19 emergency relief, the Mortgagee may use the payment amount reported on the credit report or the actual documented payment prior to suspension, when that payment amount is above $0. (H) Installment Loans (1) Definition Installment Loans (excluding Student Loans) refer to loans, not secured by real estate, that require the periodic payment of Principal and Interest (P&I). A loan secured by an interest in a timeshare must be considered an Installment Loan. (2) Standard The Mortgagee must include the monthly payment shown on the credit report, loan agreement, or payment statement to calculate the Borrower’s monthly expenses. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 634 Last Revised: 11/26/2025 If the credit report does not include a monthly payment for the loan, the Mortgagee must use the amount of the monthly payment shown in the loan agreement or payment statement. (3) Required Documentation If the monthly payment shown on the credit report is utilized to calculate the monthly expenses, no further documentation is required. If the credit report does not include a monthly payment for the loan, or the payment reported on the credit report is greater than the payment on the loan agreement or payment statement, the Mortgagee must use the loan agreement or payment statement to document the amount of the monthly payment. If the credit report, loan agreement, or payment statement shows a deferred payment arrangement for an Installment Loan, refer to the Deferred Obligations section. (I) Revolving Charge Accounts (1) Definition A Revolving Charge Account refers to a credit arrangement that requires the Borrower to make periodic payments but does not require full repayment by a specified point of time. (2) Standard The Mortgagee must include the monthly payment shown on the credit report for the Revolving Charge Account. Where the credit report does not include a monthly payment for the account, the Mortgagee must use the payment shown on the current account statement or 5 percent of the outstanding balance. (3) Required Documentation The Mortgagee must use the credit report to document the terms, balance, and payment amount on the account, if available. Where the credit report does not reflect the necessary information on the charge account, the Mortgagee must obtain a copy of the most recent charge account statement or use 5 percent of the outstanding balance to document the monthly payment. (J) 30-Day Accounts (1) Definition A 30-Day Account refers to a credit arrangement that requires the Borrower to pay off the outstanding balance on the account every month. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 635 Last Revised: 11/26/2025 (2) Standard The Mortgagee must verify the Borrower paid the outstanding balance in full on every 30-Day Account each month for the past 12 months. 30-Day Accounts that are paid monthly are not included in the Borrower’s monthly expenses. If the credit report reflects any late payments in the last 12 months, the Mortgagee must utilize 5 percent of the outstanding balance as the Borrower’s monthly debt to be included in the monthly expenses. (3) Required Documentation The Mortgagee must use the credit report to document that the Borrower has paid the balance on the account monthly for the previous 12 months. The Mortgagee must use the credit report to document the balance and must document that funds are available to pay off the balance. (K) Business Debt in Borrower’s Name (1) Definition Business Debt in Borrower’s Name refers to liabilities reported on the Borrower’s personal credit report, but payment for the debt is attributed to the Borrower’s business. (2) Standard When business debt is reported on the Borrower’s personal credit report, the debt must be included in the monthly expenses, unless the Mortgagee can document that the debt is being paid by the Borrower’s business, and the debt was considered in the cash flow analysis of the Borrower’s business. The debt is considered in the cash flow analysis where the Borrower’s business Tax Returns reflect a business expense related to the obligation, equal to or greater than the amount of payments documented as paid out of company funds. Where the Borrower’s business Tax Returns show an interest expense related to the obligation, only the interest portion of the debt is considered in the cash flow analysis. (3) Required Documentation When a self-employed Borrower states debt appearing on their personal credit report is being paid by their business, the Mortgagee must obtain documentation that the debt is paid out of company funds and that the debt was considered in the cash flow analysis of the Borrower’s business. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 636 Last Revised: 11/26/2025 (L) Disputed Derogatory Credit Accounts (1) Definition Disputed Derogatory Credit Accounts refer to disputed Charge Off Accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months. (2) Standard If the Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts, the Mortgagee must include a monthly payment in the Borrower’s monthly expenses calculation. The following items are excluded from the cumulative balance: • disputed medical accounts; and • disputed derogatory credit resulting from identity theft, credit card theft, or unauthorized use. Disputed Derogatory Credit Accounts of an NBS in a community property state are not included in the cumulative balance. (M) Non-derogatory Disputed Account and Disputed Accounts Not Indicated on the Credit Report (1) Definition Non-derogatory Disputed Accounts include the following types of accounts: • disputed accounts with zero balance; • disputed accounts with late payments aged 24 months or greater; or • disputed accounts that are current and paid as agreed. (2) Standard If a Borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the Mortgagee must analyze the effect of the disputed accounts on the Borrower’s ability to repay the loan. If the dispute results in the Borrower’s monthly debt payments utilized in computing the monthly expenses being less than the amount indicated on the credit report, the Borrower must provide documentation of the lower payments. (N) Contingent Liabilities (1) Definition A Contingent Liability is a liability that may result in the obligation to repay only where a specific event occurs. For example, a contingent liability exists when an II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 637 Last Revised: 11/26/2025 individual can be held responsible for the repayment of a debt if another legally obligated party defaults on the payment. Contingent liabilities may include cosigner liabilities and liabilities resulting from a mortgage assumption without release of liability. (2) Standard The Mortgagee must include monthly payments on contingent liabilities in the calculation of the Borrower’s monthly expenses unless the Mortgagee verifies that there is no possibility that the debt holder will pursue debt collection against the Borrower, should the other party default or the other legally obligated party has made 12 months of timely payments. When a contingent liability is created by a divorce decree or other court order, evidence that the other legally obligated party has made 12 months of timely payments is not required. (3) Required Documentation (a) Mortgage Assumptions The Mortgagee must obtain the agreement creating the contingent liability or assumption agreement and deed showing transfer of title out of the Borrower’s name. (b) Cosigned Liabilities If the cosigned liability is not included in the monthly obligation, the Mortgagee must obtain documentation to evidence that the other party to the debt has been making regular on-time payments during the previous 12 months. (c) Court-Ordered Divorce Decree or Other Court Order The Mortgagee must obtain a copy of the divorce decree or other court order ordering the spouse or other legally obligated party to make payments. (4) Calculation of Monthly Obligation The Mortgagee must calculate the monthly payment on the contingent liability based on the terms of the agreement creating the contingent liability. (O) Collection Accounts (1) Definition A Collection Account refers to a Borrower’s loan or debt that has been submitted to a collection agency by a creditor. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 638 Last Revised: 11/26/2025 (2) Standard If the credit reports used in the analysis show cumulative outstanding collection account balances of $2,000 or greater, the Mortgagee must: • verify that the debt is paid in full at the time of or prior to settlement using an acceptable source of funds; • verify that the Borrower has made payment arrangements with the creditor; or • if a payment arrangement is not available, calculate the monthly payment using 5 percent of the outstanding balance of each collection and include the monthly payment in the Borrower’s monthly expenses. (3) Required Documentation The Mortgagee must provide the following documentation: • evidence of payment in full, if paid prior to settlement; • the payoff statement, if paid at settlement; or • the payment arrangement with creditor, if not paid prior to or at settlement. If the Mortgagee uses 5 percent of the outstanding balance, no documentation is required. (P) Charge Off Accounts (1) Definition Charge Off Account refers to a Borrower’s loan or debt that has been written off by the creditor. (2) Standard Charge Off Accounts do not need to be included in the Borrower’s monthly expenses. (Q) Obligations Not Considered Debt Obligations not considered debt include: • medical collections; • automatic deductions from savings, when not associated with another type of obligation; • retirement contributions, such as 401(k) accounts; • collateralized loans secured by depository accounts; • child care; • commuting costs; • union dues; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 639 Last Revised: 11/26/2025 • insurance, other than property insurance; • open accounts with zero balances; and • voluntary deductions, when not associated with another type of obligation. (R) Private Savings Clubs (1) Definition Private Savings Club refers to a non-traditional method of saving by making deposits into a member-managed resource pool. (2) Standard If the Borrower is obligated to continue making ongoing contributions under the pooled savings agreement, this obligation must be counted in the Borrowers’ monthly expenses. The Mortgagee must verify and document the establishment and duration of the Borrower’s membership in the club and the amount of the Borrower’s required contribution to the club. (3) Required Documentation The Mortgagee must also obtain the club’s account ledgers and receipts, and verification from the club treasurer that the club is still active. (S) Federal, State, and Local Income Taxes (1) Definition Federal, State, and Local Income Taxes refer to taxes imposed by the federal, state, and local governments on the Borrower’s Effective Income. (2) Standard Federal, state, and local income taxes must be included in monthly expenses. (3) Required Documentation If available, Mortgagees must use federal, state, and local tax returns from the most recent tax year to document federal, state, and local income taxes. If tax returns are not available, Mortgagees may rely upon current pay stubs and tax tables. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 640 Last Revised: 11/26/2025 (T) Utilities and Maintenance Expenses Mortgagees must rely on the formula established by Department of Veterans Affairs (VA) for estimated maintenance and utilities in all states. Mortgagees should multiply the living area of the Property (square feet) by $0.14. Mortgagees must use the figure for square feet from the Improvements section on page 1 of the appraisal under Square Feet of Gross Living Area Above Grade. iv. Property Charges (A) Property Taxes Mortgagees must document the amount of current year property taxes, or personal property taxes for Manufactured Homes not taxed as real estate, due from all taxing authorities. Verification of real estate property taxes may be in the form of written statements or online printouts from the taxing authorities, or copies of bills. Verification of personal property taxes for Manufactured Homes not taxed as real estate may be in the form of online printouts from the taxing authority or through copies of bills and canceled checks or other equivalent proof of payment obtained from the Borrower or taxing authority. If the current year’s property tax bill is not available, Mortgagees shall calculate monthly expenses based on 1.04 percent of the prior year’s tax bill. Where property taxes are deferred or waived, the amount of the property taxes may be excluded from monthly expenses. (B) Hazard Insurance Mortgagees must obtain the current year’s declaration sheet of the insurance policy. If the current year’s declaration sheet is not available, Mortgagees shall calculate monthly expenses based on 1.04 percent of the prior year’s premium. Where no Hazard Insurance policy was previously in place, Mortgagees shall base the cost of Hazard Insurance upon the insurance quote provided to the Borrower for the cost of Hazard Insurance under the HECM. (C) Flood Insurance Mortgagees must obtain the current year’s declaration sheet of the insurance policy. If the current year’s declaration sheet is not available, Mortgagees shall calculate monthly expenses based on 1.04 percent of the prior year’s premium. Where no Flood Insurance policy was previously in place, Mortgagees shall base the cost of Flood Insurance upon the insurance quote provided to the Borrower for the cost of Flood Insurance under the HECM. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1 641 Last Revised: 11/26/2025 (D) Condominium, PUD, and HOA Fees Mortgagees must obtain from the appraisal, or from a written statement from the association or its management agent, documentation on the amount of the monthly fees. (E) Ground Rents Mortgagees must obtain from the deed, the lessor, or its management agent a written statement documenting the amount of the ground rent payment. (F) Other Assessments Mortgagees must obtain from the party levying the assessment or its management agent a written statement documenting the amount of any other assessments.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Monthly Expense Analysis (04/10/2025) · source URL · snapshot 8c03836f77f317e1