Step 1: A Personal and Financial Assessment
The first step is in the consumers’ hands. They will need to take stock of their monthly expenses and weigh their options. Getting a reverse mortgage doesn’t necessarily have to be viewed as a last resort but the homeowner should first evaluate if their financial problems can be addressed by reducing costs in the way of lifestyle changes or seeking assistance through community based programs, organizations, or churches.
Downsizing to a smaller home may also solve the financial strain if the homeowner is ready to deal with the challenges of prepping and listing their house along with the trouble of relocating. It’s also a good idea at this stage to educate one’s self as much as possible through the internet and possibly through a financial planner.
Step 2: Filling out Paperwork
The application for a reverse mortgage usually takes 45 days from beginning to end and the steps vary per lender. To be eligible for a reverse mortgage, the youngest homeowner must at least 62 years old and have enough home equity. Eligibility assessments use an FHA calculation that considers: age of the homeowner, property’s value, balance on existing mortgages, expected interest rate and Principal lending limit.
Prior to sending in the application, the consumer will need photocopies of key documents for each borrower, such as Social Security Card or Medicare Card, photo ID, recent copy of mortgage statement (if applicable), recent copy of tax bill, home owner’s insurance policy(ies), Deed of Trust (if applicable), and a death certificate for any deceased property owner whose name still appears on the title.
Step 3: Attend HUD-Approved Counseling
To ensure that consumers understand how a Reverse Mortgage can impact them and their finances, they must attend an appointment with a independent third-party counseling agency approved by the Department of Housing and Urban Development (HUD). The counselors will help the consumer make determinations as to whether a reverse mortgage is the best option and, if so, counsel them on how the proceeds from the loan should be allocated.
The counseling sessions are usually over the phone and there is typically a fee, although in some instances the fee can be waived. A signed certificate of completion is required in order to obtain a Reverse Mortgage.
Step 4: Determine Your Home’s Value
The home’s value is a key factor in determining how much money a Reverse Mortgage loan can provide. The other purpose of an appraisal is to ensure that the home meets the standards set forth by the FHA. The appraisal is done by doing a market analysis on the value of your home and comparing it to similar homes that have sold in your area.
Step 5: Processing, Closing and Receiving Funds
For consumers who want low up-front closing costs and no monthly loan payment they may choose to go with a HECM Saver over a Home Equity Line of Credit (HELOC). Or if they want to access more equity out of their home, then the consumer may want to go with a HECM Standard. Most reverse mortgage homeowners (60%) elect to receive payments through a line of credit which gives them the freedom to draw on their loan for expenses anytime they choose.
The other options include receiving the payment as a lump sum, fixed monthly or a combination all the options. For fixed rate Reverse Mortgage loans, borrowers receive payment as a lump sum. It’s a good idea to set aside an amount for the payment of property taxes and insurance when loan proceeds are received. Once the consumer satisfies the lending requirements they can complete and sign loan documents
The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.