Getting Started with a Reverse Mortgage

Getting a reverse mortgage is a major financial decision. As with any major financial decision, it’s important to learn as much as possible before you speak with a lender or broker. ReversemortgageABCs.com has lots of great information that can serve as a foundation of understanding the pros and cons of getting a reverse mortgage. For more resources, go to the related sites for the American Association of Retired Persons (AARP) and the Department of Housing and Urban Development (HUD).

Once you have a foundation of understanding, you should speak with one or more reverse mortgage lenders. To contact a lender or broker, click here. If you have filled out an application with your lender, finalization of this application will be pending completion of reverse mortgage counseling to ensure that you are aware of all of the pros and cons of a reverse mortgage, as well as your alternatives.

Counseling— either in person or over the phone— is a mandatory step in getting a reverse mortgage. A counselor will walk you through the process, help you understand if a reverse mortgage is right for you, advise you of alternatives and outline the financial and tax consequences of entering into a reverse mortgage. If you are applying for a reverse mortgage with a spouse, both of you should attend the counseling sessions.

If you are applying for a Home Keeper reverse mortgage, you can obtain counseling either from a HUD-approved counseling agency that specializes in reverse mortgage counseling or a Fannie Mae reverse mortgage counselor. If you are applying for a HECM reverse mortgage, counseling is provided by HUD-approved counseling agencies. Your lender can direct you to the available counseling resources or you can contact the groups below directly:

HUD: (800) 569-4287 or click here

AARP: (800) 209-8085

National Foundation for Credit Counseling: (866) 698-6322

Money Management International: (877) 908-2227

Upon completion of your reverse mortgage counseling, you will be given a certificate of completion. You will need this to complete the application process.

Once you have completed reverse mortgage counseling, you can complete your application for a reverse mortgage. At this point you will need to have decided on a payment plan. The application will provide the lender with pertinent personal information including, among other things, your Social Security number, information on any existing mortgages you may have on your property, your reverse mortgage counseling certificate of completion and information on your deed to the property.

As with any mortgage, you will receive a disclosure from your lender that outlines the lender’s good faith estimate of the total cost of the reverse mortgage (this is a requirement of the Truth in Lending Act). You should also receive a comparison of the HECM, Home Keeper and— if your house is worth more than $550,000— a conventional reverse mortgage, to give you a sense of your borrowing power and the total costs of each option.

As part of the processing of your application, the lender will get an appraisal of the property (which will be used to determine your maximum borrowing power). The appraiser— or, as applicable, an inspector— will make note of any deficiencies in the property. Examples of deficiencies would include items such as a leaky roof or foundation issues. Any such deficiencies will need to be corrected prior to the funding of the loan. In certain cases, the loan proceeds may be used to make the necessary repairs. The lender may also request a survey to confirm property boundaries. The lender will also order a title search to determine any liens on the property. The lender will also perform a credit check. If you have defaulted on any obligation to the federal government, you will need to rectify this prior to the reverse mortgage funding.

The costs of these searches, inspections and appraisals are borne by you; however, you can choose to fund them out of the proceeds of your reverse mortgage.

Once the processing of the application is completed, the lender will submit the loan package for approval/underwriting. The underwriting process typically takes anywhere from 4 to 8 weeks.

Once the loan has been underwritten, you will be contacted to schedule a convenient time to hold the closing. One week prior to closing, interest rates will be determined. At closing, you will sign all of the applicable loan documentation. Closing costs, which should be very close to what was outlined in the lender’s good faith estimate of costs, can be financed or paid by you at closing.

After closing, you have a three day "right of rescission" during which you can cancel the loan. At the end of this three day period, the reverse mortgage is funded by the lender in accordance with the payment option selected. Any preexisting mortgages on the property will be paid out of loan proceeds and the reverse mortgage lender will place a new lien in first position on the home.

Your reverse mortgage will be administered by a servicing company who will handle all payments of loan proceeds, depending on the payment option selected— for example, a line of credit or regular monthly payments.

The greatest benefit of the reverse mortgage is that it does not require you to make a monthly payment. The balance of the mortgage is repaid once you (or your surviving spouse) ceases to live in the home as your principal residence. At this point, the loan must be paid off through the sale of the house or with other available cash proceeds. No matter how much you have received under your reverse mortgage, the total repayment cannot exceed the sales price of your home.