Here’s What You Should Expect.
So, you’ve decided that a reverse mortgage might be the right step for you to make the most out of your retirement journey. Let’s talk about what happens next so you can be prepared as you get the ball rolling.
First things first: If you haven’t decided on the type of reverse mortgage that may be the right fit for you, take a quick click back to our last blog, which covers exactly what a reverse mortgage is and how to prepare (internal link to blog #1). If you know which one you are interested in, read on. We have everything else you need to know coming right to you.
Believe it or not, you are not the first to ask this question. Counseling takes time out of an already busy day full of things to do. Just because you are retired doesn’t mean you have a whole bunch of extra time available for yet another appointment.
Reverse mortgage counseling really is the best way to get all of your questions answered and prepare you to move through the financing process with ease.
There are a number of benefits to preparing yourself with counseling prior to moving forward with a loan application. During the counseling session, you can speak openly and confidentially with a professional reverse mortgage counselor, independent of the lender, who can help position you for financial success, clarify all costs and financial obligations that will be associated with the loan, and get you connected with a lender. Your counseling sessions are also a safe space to involve your heirs and get everyone’s questions and concerns addressed. Make sure you come prepared with your questions and take notes to save to your files.
For more details on how reverse mortgage counseling works for you go to blog #6.
When moving forward with a financial product, it is always important to research potential lenders to ensure you choose the right one for you and your situation. Here are a few of the best practices to consider when making your final selection:
The lender you choose will guide you through the application process. During your first meeting with the lender, they should provide you with a list of documents to bring with you, and you should already have all of this ready to go if you have our Reverse Mortgage Checklist. If you haven’t gotten it yet, please feel free to click here to download it now.
If you are in need of a quick refresher, you will need proof of income, assets, identity and existing mortgage information.
Your lender will make sure that you have everything you need and that based on the information provided, you are a good candidate for this type of a loan. Then they will walk you through the details of the application, to ensure that it has been completed correctly and in full.
Another good member of your team to have during the reverse mortgage process is an attorney who can look at your documents and make sure that all of the legal language protects you. This is not required, but it is recommended, especially if you are concerned about unethical behavior. You can follow the same 6 steps as you used to choose a lender above to find the right attorney to represent you.
Fees (Not sure if I can include this due to the nature of the information, but I will add it if it’s approved)
Credit and Financial Review A credit and financial review will be performed by an underwriter (link to definition of underwriter if glossary blog or page) who will review your file for approval. They will look at your credit and other financial responsibilities such as your property taxes, current utility costs, insurance, and homeowner association fees.
It is important that the underwriter can confirm that you have enough income coming in each month to maintain your monthly expenses without solely relying on the loan income. This will protect you from defaulting by getting behind on required payments or the upkeep of your home.
Appraisal An appraisal is the process the bank goes through to confirm the current market value of your home. An appraiser who assesses this value will visit your home and evaluate the condition and the square footage of both the interior of the home and the lot. They will then look at recent comparable sales nearby to determine the final value. The appraiser will also inspect your home to make sure that it reaches the minimum requirements.
Property Condition Requirements It is important to remember that your property must meet the HUD minimum requirements to be approved for a reverse mortgage. Your home must meet safety standards and local code requirements. It also cannot have any major repair issues or safety hazards that will need immediate attention, like roof damage, structural issues, water damage, or missing smoke detectors. Sometimes these repairs can be factored into the loan, but that is something you would need to discuss with your lender. Follow this link for HUD’s home requirements.
Lender Review Once all of these reports have been completed, the lender will review everything to make sure that you are all set to move forward with the loan. This part of the process may take a few weeks as they thoroughly review all of the documents, request any supporting information, and discuss the findings of the inspection and appraisal with you to come up with a remedy for any issues if necessary.
Approval Notification Once the lender has completed a thorough review of the application and all of the supporting documents, they will send a commitment letter for you to sign that details all of the terms and conditions of the loan. Take the time to review these terms carefully with your family, or your attorney, a HUD – certified housing counselor, and/or financial advisor.
You are finally approved for the financial support that will award you the stress-free retirement you’ve been dreaming of! All that’s left is scheduling your closing and signing on the dotted line.
Closing If you have an attorney, they will join you on closing day to sign your documents. Make sure you ask any and all questions that you have before your closing is completed. Be sure to bring photo identification along with you on the day of the closing with you on closing day.
Three-Day Cancellation Period this type of loan even comes with a buyer’s remorse period called “right of rescission”, which allows you to change your mind about your decision to get a reverse mortgage within 3 business days after your closing. You have the right to cancel the contract, rendering it null and void, as long as all of the money is returned.
There are three different ways to receive funds from a standard reverse mortgage loan:
There are specific things that you will be required to do during the term of your loan to make sure that you stay in accordance with the requirements of your specific loan type. Read below to learn more about what will be required of you.
Maintaining the property in the condition it was in at the time the loan was taken, or in accordance with the HUD minimum requirements, is a necessary part of your loan. You must also stay current on insurance, taxes, and association fees, as well as utility payments, to stay in compliance with your loan terms.
There are a few things that could take place that would trigger a repayment event. One of the requirements of a reverse mortgage loan is that you remain in the home as your primary residence and that you aren’t living away from home for over six months for any non-health related reason. The passing of the borrower, any co-borrowers, and spouses would trigger a repayment event, requiring the living heirs to step in.
Make sure all of your heirs and the executor of your estate are aware that you are moving forward with a reverse mortgage so they know what will be required of them if they are involved in the repayment. Lenders will typically allow 6-12 months for the heirs to finalize their decision on whether to sell the home or repay the total amount of the loan through a refinance or cash payoff.
The Reverse Mortgage Academy at Credit.org is an educational resource for HECM-certified counselors, comprehensive reverse mortgage education, and a number of service providers for you to choose from. [Get enrolled today]
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[Downloadable Resource Idea: Clickable Resource for different lists like HUD requirements, document requirements, etc.]
