The reverse mortgage process is similar to that of a conventional loan. This example will help you understand what to expect. Meet Jane and Harry and follow them through their reverse mortgage process in the story below.
Jane and Harry are retired. They have enough money to cover their living expenses in retirement, but Jane is worried that if one of them needs medical care as they age they may not be able to afford it. She starts researching financing options for seniors and comes across reverse mortgages.
Education and Research
Based on their research, Harry and Jane decide a reverse mortgage may be a good fit for them, so Jane finds a lender that specializes in reverse mortgages and contacts them to get more information about the product. Before calling a lender, Jane spends some time reading reviews and checking ratings with Consumer Affairs and the Better Business Bureau. She selects a lender that has a positive rating with both agencies.
Jane’s loan officer listens to the financial goals they have and tells her that he needs to do a preliminary financial assessment to better assess if a reverse mortgage is a good option for them. The loan officer asks for their current income, expenses, estimated property value, and permission to view their credit report. Based on this information, the loan officer advises Jane that a reverse mortgage may be able to help them meet their needs and presents her with some reverse mortgage options.
After reviewing the reverse mortgage options the loan officer provided, Jane and Harry decide a reverse mortgage is right for them. Their loan officer sends them an application packet, and they fill it out and submit it to the lender along with documentation to support the financial information Jane provided during her initial conversation with the loan officer.
Before the lender can start processing their application, both Jane and Harry must complete a reverse mortgage counseling session with a Department of Housing and Urban Development (HUD) approved counselor. HUD-approved counseling is a Federal Housing Administration (FHA) requirement for all reverse mortgage applicants. The goal of the counseling session is to make sure that each borrower understands the pros and cons of a reverse mortgage and its obligations2 before they get one. The counselor goes over the requirements of the reverse mortgage and answers any questions they have. Once completed, they send their counseling certificate to their lender right away.
The reverse mortgage lender orders an appraisal on Jane and Harry’s home. The appraisal is required by FHA to determine the value of the house and make sure it is safe and structurally sound. Any repairs needed to bring the home to FHA standards may need to be completed before the loan can close. In Jane and Harry’s case, the appraiser doesn’t identify any required repairs and sends the documents with the appraised value to the lender.
Processing and Underwriting
Once the lender receives the HUD Counseling certificate and the appraisal documents they begin processing and underwriting Jane and Harry’s reverse mortgage. The Underwriter performs the final financial assessment, requests a few more financial documents from Rachel and Harry that are unique to their financial situation and determines that the couple is eligible for a reverse mortgage. Once the Underwriter provides a final approval, the next step is to sign the final loan documents.
Jane and Harry schedule their final signing. They go over the loan documents one more time, read the fine print, and sign all their paperwork. Once their existing mortgage is paid off, Jane and Harry now have a reverse mortgage. They opt to set up the remaining available funds as a line of credit that will grow over time.3 Jane and Harry can now enjoy their retirement years knowing that there is an emergency fund in place if she or Harry need medical care as they age.
To find out if a reverse mortgage may be able to help you like it did Jane and Harry call 1 (800) 976-6211 to speak with a licensed advisor.
1Your current mortgage(s) and any other existing liens against the property, must be paid off at or before closing.
2 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
3 This is only available with an adjustable rate reverse mortgage. The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.