Reverse Mortgage Process
The reverse mortgage process has a number of steps, but you'll have plenty of resources to help you make a good financial decision. You can be confident in knowing you aren't alone in this process. Loan officers at ReverseMortgages.com, will be with you each step of the way.
What are the steps involved in the reverse mortgage process?
1. You hear about reverse mortgages
You might hear about reverse mortgages around the age of 62, especially if you're in need of additional funds to support your expenses. Maybe you did some online research about retirement funds or heard about reverse mortgages from a friend or your bank. With a reverse mortgage, you can take advantage of the equity in your home through cash payments while retaining ownership of your home.
2. More research
Searching online, asking friends and relatives for opinions and consulting a financial specialist might be the first steps you take to learn more about reverse mortgages. Once you've done your research and you still believe a reverse mortgage could be the right choice for you, it's time to contact a reverse mortgage professional. The licensed loan officers at ReverseMortgages.com, are here to help you learn more about what a reverse mortgage could do for you. Topics a loan officer might address include:
- The range of reverse mortgage options
- The costs and benefits of each option
- The role of a loan officer
- Your responsibilities as a potential borrower
- Your financial situation to help you decide whether you're making the best choice
- Any questions you may have about the process
3. Official counseling with a HUD-approved counselor
The federal government requires all potential Home Equity Conversion Mortgage (HECM) borrowers to participate in counseling to ensure you're making an informed decision about the benefits and risks of a reverse mortgage.
Your loan officer can provide a list of counselors. The counselor is a non-biased source of information who will cover the basic requirements, term, benefits and costs you may incur as a potential borrower. Scheduling this session could take about a week depending on your area and the demand for counselors. The counseling session lasts 60 to 90 minutes and can be done either face-to-face or by phone.
After counseling, if you decide a reverse mortgage is right for you, you can select a loan originator through ReverseMortgages.com The loan originator will verify your eligibility and complete a preliminary financial assessment to make sure you have the financial capability to continue the responsibilities of maintaining your home. Once your eligibility and financial assessment are finished, preliminary paperwork will be completed so the loan officer can continue processing your file.
The loan originator will discuss with you any costs or fees associated with the reverse mortgage. These fees may include:
- An origination fee: to pay the lender's expenses in completing the reverse mortgage
- Mortgage insurance premiums: to pay the Federal Housing Administration to protect both the lender and the borrower
- Appraisal fee: to pay for the cost of a home appraisal
- Closing costs: generally the same as with a traditional mortgage, such as credit reports, escrow, document preparation, recording, and other fees.
- Servicing fee and set-aside: to pay the lender for administering the loan. Set-asides for servicing generally are unusual these days but may be used to project and set-aside future costs of administering the loan.
- Interest: paid at the end of the loan when repayment occurs. Interest accrues over time based on the amount of funds you receive. If you have a line of credit, interest will accrue only on the amount of credit you have used.
5. Loan Processing
The lender will order an appraisal of your home to determine its value. After your home has been appraised and when all required information and other items are completed and returned, the file will be sent to a loan underwriter for approval. The initial underwriting could take up to five days. During this process, the underwriter will double check the information in the file to make sure it complies with all government rules and guidelines.
6. Closing the loan
You'll meet with a notary or attorney to sign the reverse mortgage documents and close the reverse loan. As part of closing, the lender will confirm the terms of the agreement with you. You may have the closing costs included in the loan or pay them separately at closing. As the borrower, you have the "Right of Rescission:" a three-day period during which you can change your mind. After this three-day period, the loan proceeds will be disbursed to you.
7. Servicing the loan
During the life of the loan, a loan servicer is responsible for managing your account, disbursing payments and sending periodic loan statements to you. The loan servicer also will make sure you are staying current with paying real estate taxes, homeowner's insurance and home maintenance. You can pay these costs on your own or ask your servicer to create a set-aside account to pay the costs for you.
8. Settling the loan
The borrower is not responsible for making any monthly mortgage payments on the loan as long as they remain current on real estate taxes, homeowner's insurance and home repairs. When the last borrower on the reverse mortgage dies, sells or otherwise conveys the property title to someone else or doesn't reside in the property for 12 months, the reverse mortgage becomes "due and payable." In the event of the borrower's death, the home is transferred to heirs of the estate who have the option of selling the home or pay off the reverse mortgage or maintaining ownership of the property. It's important to communicate regularly with the servicer after the loan enters "due and payable" status.
Read more about the pros and cons of a reverse mortgage or continue to the next section on reverse mortgage rates.