How does the Reverse Mortgage Loan process work?
Education
Do your research. Read up on the process as much as you can. Talk to your local Better Business Bureau (BBB) and your local American Association of Retired Persons (AARP) about the process and the lender. The AARP Foundation Reverse Mortgage Education Project includes a national network of reverse mortgage counselors dedicated to helping seniors understand and evaluate the risks and advantages of reverse mortgage borrowing.
Counseling
Federal regulations and state law requires that reverse mortgage borrowers receive state-certified housing counseling. And while this counseling is mandatory for HECM reverse mortgage borrowers, the service typically has a fee, but here at Alliance Guaranty, we have a list of HUD-approved counselors who don't charge for their services because they are supported by their city's or county's department of housing which have waived the fee. Counseling appointments typically take about an hour and may be handled in-person or over the telephone.
Loan Application
Your lending agent will require you to complete a loan application and determine how to receive payment.
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These are your options:
Processing
Your lender will order:
Underwriting
Once your lender has received and completed the required documentation, your loan package will be submitted to the financial organization that will be underwriting the loan, for final approval.
Closing
After your reverse mortgage loan has been approved and signed, the loan's initial interest rate will be determined. Closing costs are typically financed by the loan.
Disbursement
Once you have officially closed on the loan, you have 3 business days to change your mind and cancel the loan. After the 3-day period, the funds are disbursed, including any amount that will be applied to a previous lien on the property. Then you will begin receive payments according to the payment option you selected.
Repayment
You will not be required to make monthly payments during the term of your loan. The reverse mortgage becomes due and payable in full once: 1) the home is no longer being used as a primary residence, 2) it is sold, or 3) the borrower passes away. Upon the death of the borrower, the loan may be repaid from the sale of the home or by refinancing the existing reverse mortgage. All remaining equity belongs to the heirs/estate. 4) If property tax and homeowners insurance aren't paid.
What can I expect to learn from my housing counseling appointment?
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Accredited housing counselors work with seniors to help them evaluate the viability of a reverse mortgage loan by looking at the borrowers:
HUD-approved HECM housing counselors are required to use loan comparison and analysis software that meets the requirements established by the AARP. Certified counselors must also adhere to the AARP Foundation Reverse Mortgage Education Project counseling policies and procedures. Because it is their job to help insure that you are making a responsible financial decision, they may also review financial options with you.
How do I avoid Reverse Mortgage Loan fraud and scams?
Talk to your counselor. Start by scheduling an appointment with a HUD-approved reverse mortgage counselor. It is their job to help you understand reverse mortgages and help you evaluate your situation.
Look closely at the terms and conditions. Watch out for unethical terms and extraneous fees. Your HUD-approved counselor can help you look for these. Don’t be afraid to ask. And if you are concerned that a lender may be violating the law, report them to your reverse mortgage loan counselor.
You have 3 days to change your mind. Typically, you have three business days after closing on the loan to back out — for any reason.
REVERSE MORTGAGE LOANS — FACT OR FICTION
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My health would disqualify me.
FALSE — There are no health requirements.
I still owe on my home, so I wouldn’t qualify.
NOT NECESSARILY — You may still qualify. The proceeds from the reverse mortgage loan must be able to pay off your existing loan balance at closing.
If I take out a reverse mortgage loan, the lender agent will own my home.
FALSE — The lender's interest is limited to the loan balance and they will NEVER take control of the title as long as you live in the home as required, as well as continue to pay your proprty taxes and homeowner's insurance. You and your heirs/estate retain ownership of the home.
I can’t get a reverse mortgage loan without it affecting my pension, Social Security or Medicare.
NOT NECESSARILY — A reverse mortgage loan will not affect most means-tested benefits, however welfare programs, such as SSI and Mediciad, may be affected.
HOWEVER, be sure to check with your local area agency on aging since programs do vary by state.
I would end up owing more in taxes.
FALSE – All proceeds associated with a reverse mortgage loan are tax-free because they are considered borrowed funds.
If the amount of my reverse mortgage loan ever exceeded my home’s appraised value, I’d end up owing money.
FALSE: A reverse mortgages is considered "non-recourse" loan. That means you will never owe more than the home’s value, regardless of the loan balance.
My loan terms can change if my loan is sold.
FALSE – At the closing of your loan, you will sign a legal contract assuring your loan's terms cannot be changed, regardless if the loan is sold.
Reverse mortgage loans are only a good idea for seniors who are cash poor.
NOT NECESSARILY — While some seniors may clearly have greater financial need, a reverse mortgage can be an excellent estate-planning tool for any senior that has substantial equity in their home.
A reverse mortgage loan would end up being a burden to my kids.
FALSE — Borrowers have between six months to a year to pay off the reverse mortgage loan if they file an extension (an advantage regular mortgages do not provide). Be sure to contact your reverse mortgage lender to file the correct paperwork. The loan may be repaid by refinancing the existing reverse mortgage, or by selling the property. Any remaining proceeds would then belong to the heirs, or the estate.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.