Steps For Obtaining a Reverse Mortgage
The first step toward obtaining a reverse mortgage is the homeowner becomes aware of the existence of reverse mortgages from news articles, advertisements, word of mouth, etc.
2. Information Gathering
The homeowner conducts research to learn more about how reverse mortgages work. This may involve talking to trusted financial professionals and visiting the HUD website, AARP website, or other websites like this one.
3. Talking to a Mortgage Professional
The homeowner finds a loan officer with whom to discuss their situation. The loan officer should be able to identify your eligibility and give you an idea of how a reverse mortgage would look for your circumstances, including giving you some preliminary numbers and a tentative amortization schedule, so you can see how it plays out over time. The loan officer can help provide an estimate of your home's value and review your various options.
Once the homeowner feels like they have a pretty good grasp on a reverse mortgage and how they want to set it up, it's time for counseling. The loan officer can provide a list of HUD approved counseling offices, or lists can be found on the HUD website or elsewhere. Counseling is required for all reverse mortgages and may be conducted face-to-face or by telephone.
By law, a counselor must review A) options, other than a reverse mortgage, that are available to the prospective borrower, including housing, social services, health and financial alternatives, B) other home equity conversion options that are or may become available, such as property tax deferral programs, C) the financial implications of entering into a reverse mortgage, and D) the tax consequences affecting the prospective borrower's eligibility under state or federal programs and the impact on the estate or his or her heirs.
Now the homeowner can fill out an application and sign the initial paperwork with all the disclosures, having settled on the reverse mortgage option best for them. Signing these papers does not obligate the homeowner to anything, it is just to get the process started, enable an FHA case file to be created, and an appraisal to be ordered.
At the time of application the lender will probably have a checklist of items for the homeowner to send or bring in. These might include:
Copy of your photo identification document - acceptable IDs are state issued driver's license OR ID card OR military ID, a passport, OR US alien registration card Copy of social security card OR Medicaid card OR award letter (must be a US government document) Copy of homeowner's insurance declarations page (or your insurance agent's contact information) Copy of recent mortgage statement, if any Signed original counseling certificate (dated the day your counseling took place) A complete copy of the trust, including all amendments, if the property is in a trust or will be put into a trust Copy of Power of Attorney, if applicable Copy of death certificate for deceased spouse if they are still on title or on the trust. Original will be needed at the time of final loan document signing If the borrower has anyone living with them, that person will need to sign 2 forms for a Non-Borrowing Resident, and will also need a copy of their driver's license. If the borrower's spouse will NOT be on the loan with them, the lender will need their date of birth and social security number along with a signed Borrower's Authorization form to pull credit. Copy of most recent two months bank statements if the borrower needs to bring money to close. The lender will need to see source and seasoning of all money brought to closing. Copy of most recent two months statements from two different utility companies (example: gas and electric, water and trash) to establish occupancy.
Lender orders an appraisal, which the homeowner pays for, usually by credit card authorization. The appraiser calls the homeowner to set up a convenient time. The appraiser will take inside and outside photos and will make sure the physical condition of the property meets FHA guidelines. If any defects are found, the homeowner must get the necessary repairs done before bringing the appraiser back (at additional cost) to take photos of the repairs.
After receiving all pertinent information and data, the loan file is submitted to underwriting. It generally takes about 30 days (similar to a regular forward loan) to complete the underwriting.
Once the loan package is approved, docs are created, the interest rate can be locked in, and final signing is scheduled with the homeowner.
The homeowner has 3 business days after signing the final papers in which to cancel the loan. This is the 3-day right of rescission. Upon expiration of this period, the loan funds are dispursed, and the homeowner receives their money in whatever manner they selected. Any existing debt on the home is paid off, and the new reverse mortgage lien is placed on the home. The homeowner may use the proceeds of the loan for any purpose. The loan "servicer" manages the account and is responsible for disbursing monthly payments to the homeowner (if this option is available and chosen), and sending periodic statements.
The homeowner does not make any monthly mortgage payments during the life of the loan. At the termination of the loan, usually when the last remaining borrower sells the home or passes away, the loan may be repaid by the homeowner or the heirs/estate, with or without a sale of the home. If the home is sold to a third party, the repayment obligation cannot exceed the home's value or sales price.