A reverse mortgage loan is a Federal Housing Administration (FHA) insured loan that allows borrowers to convert a portion of the equity in their home into usable funds without having to make monthly mortgage payments1. They can receive their funds in cash, either through a lump sum2 payment, monthly payments, a line of credit, or a combination of these options. Homeowners must be at least 62 years old, live in the home as their primary residence and have sufficient equity in their home.
Senior care giving site, Caring.com, describes the financial situation of many retirees: “Most seniors rely on a wide range of Social Security benefits to provide at least some regular income. Those who have few assets and very low income might also qualify for the Supplemental Security Income (SSI) program. And if either partner of a married couple was in the military, they both may be eligible for veteran’s benefits.” Oftentimes, those supplemental forms of income are not enough for seniors to live comfortably and if they need more financial assistance, a reverse mortgage loan may be a good option.
Reverse mortgage loans have a fairly straight-forward application process. As with all major financial decisions, it is highly recommended that all potential borrowers discuss both their short and long-term financial goals with a trusted advisor or family member.
1. Initial Application This application authorizes your lender to begin the application process. However, the lender cannot incur any costs on your behalf until reverse mortgage loan counseling (step 2) is completed. The initial application is not binding and can be canceled at any point during the process.
2. Reverse Mortgage Counseling The applicant must complete a counseling session with an approved reverse mortgage counselor and submit a signed Counseling Certificate before the lender is legally permitted to incur any costs on the applicant’s behalf (such as ordering the appraisal). The Counseling Certificate is proof that the applicant has completed the mandatory counseling session with a Department of Housing and Urban Development (HUD) approved counseling agency. During the session, the counselor will discuss the reverse mortgage loan and answer any questions you may have. The US Department of Housing and Urban Development (HUD) has a search tool you can use to find counselors available in your area.
3. Appraisal The reverse mortgage appraisal must be conducted by an independent HUD approved appraiser (not all appraisers have this approval) and it must follow specific HUD guidelines. If an applicant already has an appraisal, it will likely have to be re-appraised. The appraisal establishes the legal value of the applicant’s property.
4. Underwriting The underwriter reviews all documents submitted and identifies conditions to be satisfied related to any additional or missing items. Once all the conditions have been met, the final closing date can be set.
5. Closing The lender and the applicant set a closing date where a notary or an attorney meets with the applicant to sign the final closing documents. Once the closing documents are signed, there is a three-day “right of rescission” period. This means that even though the closing has taken place, the applicant can still cancel the loan with no penalty within three business days after the closing. The three-day “right of rescission” period does not apply to the HECM for Purchase Product.
Your lender will be in contact with you throughout the loan process to answer any questions you might have. Obtaining a reverse mortgage loan can be a helpful tool for seniors seeking financial stability. If you feel that a reverse mortgage loan should be a part of your financial plan, or to find out if a reverse mortgage loan is right for you, call 866 404.6138.
1 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.
2 Only available for fixed-rate loans.