How does the Reverse Mortgage loan process work?
Federal regulations and state law often requires that reverse mortgage borrowers receive state-certified housing counseling. And while this counseling is mandatory for HECM reverse mortgage borrowers.HUD counseling appointments typically take about an hour and may be handled in-person or over the telephone.
Your lending agent will require you to complete a loan application and determine how to receive payment.
These are you options:
Your lender will order:
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.
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 to receive payments according to the payment option you selected.
You will not be required to make monthly principal and interest payments during the term of your loan. You will still be required to pay property tax and hazard insurance. 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, 3) the borrower fails to pay property taxes, homeowner's insurance or otherwise comply with the loan terms or 4) 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.
What can I expect to learn from my housing counseling appointment?
Accredited housing counselors work with seniors to help them evaluate the viability of a reverse mortgage loan by looking at the borrowers:
REVERSE MORTGAGE -- FACT OR FICTION
I would need a steady income to qualify. There are minimal income and credit requirements.
I would need to be debt-free to qualify. There are minimal income and credit requirements.
My health would disqualify me. FALSE -- There are no health requirements.
If I take out a reverse mortgage, the lender agent will own my home. While the borrower cannot lose their home under normal circumstance, foreclosure may occur if they do not pay taxes, insurance and otherwise comply with the loan terms.
I can’t get a reverse mortgage loan without it affecting my pension, Social Security or Medicare. NOT NECESSARILY -- A reverse mortgage will not affect most means-tested benefits. HOWEVER, revers mortgage loans can impact certain needs-based benefits, such as Medicaid and SSI-be sure to check with your local area agency on aging since programs do vary by state.
I would end up owing more in income 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 if they choose. The loan may be repaid using personal funds, refinancing into a forward mortgage, or by selling the property. Any remaining proceeds would then belong to the heirs, or the estate.
We are a member of the National Reverse Mortgage Lenders Association (NRMLA). Our Reverse Mortgage Counselors adhere to and maintain standards and a code of conduct that are aimed at protecting the interests of the senior community and their families. We realize that although Reverse Mortgage products can be an excellent financial solution, they may not be the cure all for your financial needs.
Our customary methods in terms of consumer safeguards for senior citizens include:
Before a Reverse Mortgage loan application is written, we will provide you with the name of a professionally trained HUD approved counselor, and arrange for them to furnish you with an expert objective overview and discuss with you all the Reverse Mortgage options. Upon your acceptance, we will submit the Reverse Mortgage application to our processing team, who once again reviews the selected program to further ensure a proper and educated decision has been made. Our processing team then submits the application to our HUD approved lenders' underwriting department. Underwriting will perform a secondary review of the program and product choice.
Ultimately, our goal is to help our senior clients obtain the reverse mortgage loan that best meets their needs and help our clients with any questions they may have in understanding a reverse mortgage.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.
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