Applying for a reverse mortgage loan can seem daunting, and it’s not a particularly fast process. But if you understand what is happening at every step, you can set realistic timeline expectations. Here is an overview of the seven steps involved with applying for a reverse mortgage.
What are the requirements for a reverse mortgage?
Before you start applying for a reverse mortgage, you’ll want to make sure that you meet the requirements for getting a reverse mortgage. The general requirements are that:
- You are 62 years or older, though there are exceptions for proprietary loans.
- You own your home with proof your name is on the deed, and it is your primary residence.
- All existing liens have been paid off or will be paid with the reverse mortgage proceeds.
- You are not delinquent on any federal debt, such as federal income taxes or federal student loans (or will be able to clear the debt at closing).
- Your home is in good condition, meaning it meets the U.S. Department of Housing and Urban Development (HUD) property requirements.
- You have the financial resources to pay ongoing costs, such as taxes, insurance, maintenance, and repairs. A financial assessment conducted during the loan process will determine whether it is necessary to set aside loan proceeds to cover these costs.
- If your reverse mortgage is a home equity conversion mortgage (HECM) or a proprietary mortgage, you are also required to receive counseling from a reverse mortgage counseling agency. This counseling is mandated by HUD to make sure that borrowers fully understand the terms of the loan before committing to the loan.
Once you confirm that you’re eligible for a reverse mortgage, follow these steps to select and apply for a reverse mortgage.
Step 1: Research lenders and loan availability
Educate yourself on types of reverse mortgages, and the lenders available in your area. The National Reverse Mortgage Lenders Association (NRMLA) offers guides to help you with this process. A reverse mortgage professional can explain the terms, advantages, and costs of each type of reverse mortgage.
Step 2: Attend reverse mortgage counseling
Counseling is required for all reverse mortgages. Counseling can take place in person or depending on the state over the phone. The session typically lasts for 90 minutes. Lenders are not permitted to direct you to a specific counselor or agency. Rather, they are required by HUD to provide you with a list of approved counselors.
Step 3: Review application, fees, and disclosures
Once you’ve received the certificate proving that you’ve been through the counseling process, you can select and meet with your lender, known as your loan originator. You’ll provide some personal information so your originator can determine if you’re eligible for a reverse mortgage.
Your originator will explain the application, the fees involved with your loan type, and any disclosures. You will choose how you want to receive your funds, either in a lump-sum payout, line of credit, fixed monthly payouts, or a combination.
Step 4: Submit for loan processing
Once you sign the application, the loan moves to processing where the appraisal and title are ordered. The borrower pays for the appraisal. After the originator receives the appraisal, your application is sent to the loan underwriter. The underwriter, who is employed by the originator, reviews the application and determines whether to approve it. This process can take a few days to several weeks, depending upon the area.
Step 5: Close on the loan
Once your loan application is approved, closing is scheduled with a title agent or attorney (depending upon the state). The originator will confirm your payout choice. Final figures and closing documents are prepared. Lien payoffs are made.
Closing costs are normally financed as part of the loan (except for the counseling fee), but you have the option to pay them in lieu of financing. This process can take a few business days. Closing agents should not pressure you to close within a certain time frame. At this stage, you may still change your mind.
Step 6: Receive fund distribution
After you’ve signed your reverse mortgage loan, as with any other refinance, you have three business days to cancel your loan. This is known as the “Right of Rescission” period. Once they’ve passed, your funds are disbursed in the form you chose. You may change your payout plan at any time by requesting a new payout plan agreement from your servicer, which may include a minimal service charge.
Step 7: Work with loan servicing
After your loan closes, a loan servicer will manage your account. The servicer will disburse your monthly funds and will alert you if there are any tax or insurance issues with your loan.
In the right situation, a reverse mortgage can be a useful financial tool. Before embarking on any major financial decision, it’s always wise to consult with a finance professional.
