Here are a few of the steps you’ll want to go through to get started with a reverse mortgage. Keep in mind that these types of loans are not necessarily for everybody, but they can be a great source of funding when seniors are in need of additional income.
1. Becoming Aware: Because reverse mortgages are relatively new, there are a lot of people that don’t know much about them. Although the media including newspaper, tv, radio, etc. are reporting more on stories about reverse mortgages, there are still a lot of misconceptions and misunderstanding. People learn about reverse mortgages through the news, articles in the newspaper, magazines and other medium including word-of-mouth.
2. Get Educated: Homeowners find out additional details from a reverse mortgage lender or use tools like the internet to get more details on reverse mortgages. The National Reverse Mortgage Lenders Association may also have some insight into reverse mortgage lenders in your area.
3. Independent Counseling: Before being able to be approved for a reverse mortgage, the borrower will need to work with independent counselors through either the AARP or through a local HUD-approved counseling agency. This counseling can be done in person or over the phone. Counselors will review other options including housing, social services, health and financial alternatives as well as other home equity conversion options including property tax deferral. The counselors will also discuss the financial implications of a transaction like this and the potential consequences including tax liabilities.
4. Application Process: Homeowners will then work with their loan officers to complete an application and choose their payment plan in the form of either a lump sum or monthly payments, a line of credit, or a combination of all three. The lender will disclose all of the details about the loan and the loan amount and all estimated costs as dictated by the federal truth in lending act. The application will also include verification data including social security information, deed to the home, information on existing mortgage (if any), and counseling certificate.
5. Processing: The lender will order an appraisal of the home to determine the value and the appraiser will also make sure the home meets the FHA guidelines for the physical condition of the home. Repairs may be required if any component of the home doesn’t meet the guidelines for the physical condition of the home. Repairs are the responsibility of the homeowner and any expenses occurred in this case are the responsibility of the homeowner as well.
6. Underwriting: Once the application and all necessary paperwork required to accompany the application are submitted, the process of underwriting the loan begins. By this time, the loan parameters have been agreed to by the lender as well as the borrower and include things like payment options, frequency of loan interest rate adjustments, and loan amounts. The underwriting process takes about 4-8 weeks to underwrite the loan package. Some underwriting may be done faster, some slower.
7. Closing: Once the loan is approved through the underwriting process, the closing is scheduled. Interest rates are calculated at this point and the closing documents and final numbers are prepared. Most costs, if not all costs may be financed as a part of the loan. The homeowners are required at this point to sign the loan papers.
8. Disbursement: Following the closing of the loan, the homeowner has a 3-day right of rescission. This means the homeowner can cancel the loan within those three days without penalty. Once this 3-day right of rescission has passed, the funds from the loan are dispersed. Depending on the method of payment selected by the homeowner, the funds are then dispersed or made available. Any existing debt on the home at this point is paid off and a new lien is placed on the home. The homeowner at this point may use those funds for any purpose.
9. Repayment: Homeowners aren’t required to pay any mortgage payments or repay the reverse mortgage until they cease to occupy the home as their principal residence. The reverse mortgage may be repaid by the homeowner or the heirs or by the estate. This repayment doesn’t require the sale of the home. The repayment obligation of mortgage can be taken care of by a traditional refinance as well. The loan amount or repayment obligation can’t exceed the home’s value or sales price.
These are the main steps to getting a reverse mortgage. Seniors age 62 and older can apply for and get approved for this type of loan. Reverse mortgages aren’t for everybody, but if you are in a position to need income beyond retirement, the reverse mortgage may be a very good option. How much you’ll get will depend on your age as well as the equity and value of the home. Plan on speaking with a counselor as well as a loan officer prior to getting a reverse mortgage. Research will be a valuable tool when making a decision involving perhaps your most valuable possession.