Tom explains
Set-asides, in plain words: pay your taxes and insurance on time
Tom Jarboe, NMLS #210600
The short answer
A set-aside, or LESA (Life Expectancy Set-Aside), holds back part of your reverse mortgage to pay your property taxes and homeowners insurance over time. The lender may require one if your past tax or insurance payments, or your income, raise a concern. The real cost is that it lowers the amount you can borrow.
From Tom: "Pay your taxes, pay your insurance." In my experience, when those have been paid on time, a reverse mortgage may still be possible even if the rest of your credit isn't perfect. It's always the lender's decision.
What it is, in plain words
HUD's formula estimates your property taxes and insurance for the youngest borrower's life expectancy, and that amount is held back from the loan so the bills get paid. It covers property taxes, homeowners insurance and flood insurance if you need it. It doesn't pay HOA dues, repairs or upkeep. Those stay yours.
The two kinds, and who usually needs one
- Fully funded. This is the one I see most often. In my experience, it usually comes from late property taxes or late homeowners insurance in the last couple of years. The lender pays those bills for you from the set-aside, and each payment is added to your loan balance.
- Partially funded. I rarely see this one. In my experience, it's usually for someone whose taxes and insurance were paid on time, but whose documented income comes up short of HUD's guideline for what should be left over each month. Twice a year the lender sends you money from the set-aside, and you pay the bills yourself. It's only available on adjustable-rate loans.
Why, in my experience, do taxes and insurance count for so much, even more than old mortgage payments? Because after a reverse mortgage, they're still your responsibility. The lender wants to see you've kept up with them.
Questions about your own situation?
Talk with Tom Jarboe. He's been helping families with home loans since 1986. You'll get plain answers, and he'll tell you if a reverse mortgage isn't the right fit.
What it costs you
It isn't free money. The set-aside comes out of what you could otherwise borrow, and each tax or insurance payment made from it is added to your loan balance, which grows over time with interest and mortgage insurance.
For a younger borrower or a home with high property taxes it can be a large share. Ask to see the numbers with and without one.
When it won't work
If there isn't enough income, or the loan can't cover the set-aside plus paying off what you owe on the home, it won't work today.
Then my advice is simple: get your taxes and insurance current, pay them on time, and talk with a HUD-approved counselor about other options, like California's Property Tax Postponement. A steady on-time record can make a difference when we look again.
The one thing I wish every homeowner knew
In my experience, most set-asides are the fully funded kind, and those usually come from late tax or insurance payments. Paying them on time is the best way I know to avoid needing one. For a reverse mortgage, that on-time record can matter more than the rest of your credit history.
Every situation is different, and qualifying is always the lender's decision under HUD's rules. I'm a loan officer, not a counselor. Before you apply, you'll meet with an independent HUD-approved counselor. For the full picture, read how a set-aside (LESA) works, or talk with me.
Sources (read November 4, 2026)show all
- 24 CFR 206.37, Financial Assessment (eCFR, Part 206): https://www.ecfr.gov/current/title-24/subtitle-B/chapter-II/subchapter-B/part-206
- 24 CFR 206.205, property charges and the Life Expectancy Set-Aside (eCFR, Part 206): https://www.ecfr.gov/current/title-24/subtitle-B/chapter-II/subchapter-B/part-206
- 24 CFR 206.19(f), fully and partially funded set-asides (eCFR, Part 206): https://www.ecfr.gov/current/title-24/subtitle-B/chapter-II/subchapter-B/part-206
Free
Reverse Mortgages in California: A Family Guide
I put the key rules from this site into one printable guide for your family: how it works, set-asides, what happens when a parent dies, and the questions to ask. Instant download after you enter your email. No phone number needed.
Tom Jarboe, Regional Sales Manager, New American Funding, NMLS #210600, Diamond Bar.
Questions about your own situation? Talk with me first: (909) 869-6588. Before you can apply for a reverse mortgage, you'll meet with an independent HUD-approved counselor. More notes.