What Are the Steps to Apply for a Reverse Mortgage?
If you have decided that a reverse mortgage is worth considering, then you will need to follow a few important steps. We’ve outlined those for you below.
You might think that the first step in getting a mortgage is to find a lender, and you can definitely start comparing them now. However, understand that no lender can do anything to start your mortgage loan until you have completed an approved counseling program. You must also submit a signed Home Equity Conversion Mortgage (HECM) Counseling Certificate.
So, the actual first step should be to choose a counseling agency. You can do that with the help of HUD’s online search tool here. Once you have completed your counseling session, you can move on to the next step.
Find a Lender
This is the single most important step in getting a reverse mortgage. If your home is under the HUD/FHA maximum value, then you will be able to choose from any FHA-approved lender you want. You can start the process with HUD’s online search tool here. The NRMLA also offers help in finding a lender here.
However, if your home exceeds that maximum value, you will need to find a private lender that offers jumbo/proprietary reverse mortgages. Be cautious here, because these loans are not backed by the federal government and may have very different costs than an FHA-backed reverse mortgage loan.
Complete an Application
Without an application, all a lender can do is give you a rough estimate of your interest rate and total loan amount. You will need to complete and file an application with your lender of choice to authorize them to begin the process. Note that this can actually be done before you complete counseling, but the lender cannot complete the application process until you have finished counseling.
So, the first three steps can actually be done simultaneously, as they are all interrelated. Note that completing the application is not the same as signing a contract. It can be cancelled at any point in the process if you are uncomfortable with the lender or the situation.
Complete the Appraisal
Once you have filed the application with your lender, it’s time to move on to the most time-consuming portion of the process – the appraisal. You will need to hire a home appraiser familiar with FHA/HUD requirements, and pay them to appraise the property.
This will determine the actual market value of the home, while also bringing to light any structural or safety issues that need to be addressed before a loan can be made. If you’re not sure which appraisers near you are FHA-approved, you can use HUD’s online search tool here.
The most nerve-wracking portion of the process is underwriting. This is when the lender will dig into the situation, evaluate your financial situation, the condition of your home, and go through all the documentation you supplied in order to determine if they will offer you a loan or not.
Note that if the underwriter identifies conditions that prevent the loan from being made, you will need to rectify the situation before the loan can move forward. Once you’ve gotten the green light here, you can move on to the closing process.
Closing is the final step in getting a reverse mortgage. You will need to meet with an attorney or a notary public to go over all the paperwork and sign where necessary. It’s important that you double-check all the pertinent details during this step, including the interest, the fees being charged, the loan amount, and more to make sure that there were no errors or changes made.
Once the closing process is done, you have three business days during which you are allowed to change your mind. This is called the right to rescind, and if you choose to back out, there are no penalties assessed or fees charged. If you decide to move forward, the lender will either write you a check or wire the funds to your bank account after the three-day period.