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The Reverse Mortgage Process
Education
This is the phase you are in now. You are taking the time to learn about your options and determine if a reverse mortgage is a good fit for your situation.
Counseling
Reverse mortgage applicants are required to participate in a consumer education session with a HUD approved counselor.
The counselor will explain the legal and financial implications of the program and discuss alternatives you may have. A reverse mortgage is not for everyone, so this step will help you ensure you are making the right decision.
Upon completion of counseling, you will be given a Certificate of Borrower Counseling which is valid for 180 days after the session. This certificate serves as proof to the lender that you have fulfilled the counseling requirement and are fully informed about the reverse mortgage program.
Application
Your loan officer will sit down with you to help you complete and sign the loan application. Once you have submitted your completed application, you will receive a disclosure of the estimated total cost of the loan, as required by the federal Truth in Lending Act.
Appraisal
A professional FHA approved appraiser will determine the value of your home. This valuation will be used to calculate the amount you can receive through your reverse mortgage.
Home Insurance
Most lenders will require that you show proof that you have purchased home insurance or hazard insurance which will protect you in case your home is destroyed as a result of fire, theft, or some other disaster. If you already carry hazard insurance, make sure your policy is up to date, payments are current, and you have at least the minimum coverage required by your lender.
Mortgage Insurance
Your lender will also require a mortgage insurance policy. This will protect you and your heirs by insuring that the amount required for repayment of the loan will never exceed the value of your home at the time of repayment. An initial premium will be due upon closing your loan. Further payments may be financed as a part of your reverse mortgage proceeds.
Title Insurance
There are two types of title insurance: one protects the lender, and one protects the borrower.
Title insurance is purchased as protection from claims against your ownership of the property. Such claims may be made by undisclosed spouses, heirs of previous owners, creditors holding liens against previous owners, or other parties.
Your lender will most likely require you to purchase a title policy which will cover their interests in the property. It’s up to you to purchase a policy to protect your interest in your home. Your loan officer will be able to recommend a title insurance company who can provide additional information about policies available in your area.
Closing
Loan processing typically takes 6-8 weeks after which the closing can take place. The closing for a reverse mortgage typically takes place in your home. The loan documents, including the mortgage or deed of trust, are forwarded to you to review and sign where directed and pay any applicable closing costs. You then have three days during which you can cancel the mortgage if you change your mind. Any cash disbursements due to you will be sent from the processing center after the three days have expired.
Setting the Closing Date
Closing must be coordinated with many parties that may include: the lender, yourself, your attorney, and title company representatives.
Last Minute Detail Check
A few days before the closing, your loan officer will help you go through a checklist of what you’ll need to finalize and close your loan, including:
- Closing costs and escrow amounts
Your Good Faith Estimate may not include all closing costs. Values for interim interest or property taxes may vary, for example. Finalize actual costs at this time with your closing agent to avoid last minute surprises.
- Acceptable method of payment
In most cases certified or cashier's checks must be prepared in advance.
- Any additional items needed
Some counties require photo ID, evidence of hazard or flood insurance, or other miscellaneous documentation. This is the time to gather all your ID and any miscellaneous paperwork that may be required at closing.
After the Closing
With a reverse mortgage, you will have responsibilities similar to those associated with a traditional mortgage. You are expected to:
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