For years borrowers have been leveraging reverse mortgages to help consolidate debt, eliminate their monthly housing payment, and even fund retirement. In fact, home equity conversion mortgages (HECM) have become increasingly popular over the last decade.
But if you are considering taking out a new reverse mortgage, it’s important you know that the application and approval process is significantly different than other loans you may have applied for previously.
Unlike a car loan or even a traditional mortgage, there are a few hoops you must jump through before you can even submit your reverse mortgage application.
Overall, the reverse mortgage process can be roughly broken out into five simple steps: finding a lender and going over the numbers, attending credit counseling, submitting your application and disclosures, getting assigned a case number, processing and closing.
Understanding the steps involved in the reverse mortgage process will help streamline your application and make you better prepared to handle any hiccups throughout the process should any arise.
Find a Lender and Review the Numbers
The first step when applying for any loan is to find the right lender and review all the preliminary numbers. Make sure to choose a reputable lender that is knowledgeable and has the professional acumen to originate your loan.
Take some time to research a few providers considering consumer reviews, professional affiliations (such as membership with the National Reverse Mortgage Lenders Association (NRMLA)), or even reputation with the Better Business Bureau.
If you are looking to take advantage of the home equity conversion mortgage (HECM) program, the provider must also be an FHA-approved lender.
Once you find the right lender, discuss your needs with them and come up with a preliminary proposal. The proposal should outline the entire transaction, including a granular breakdown of all the numbers including the total loan amount, proposed interest rate, term, etc.
Complete Credit Counseling
Reverse mortgages can be a bit more complicated compared to a traditional mortgage or other types of loans. That’s why most reverse mortgage providers require you to attend and complete reverse mortgage credit counseling through a government-approved agency.
Counseling can either be completed over the phone or in person but is required before you can formally submit your loan application.
Throughout the session, a counselor will review how a reverse mortgage works, outlining the pros and cons, as well as discuss payment options, costs, and potential tax implications.
After you complete your counseling, you should receive a certificate verifying you have completed this requirement which you will need to provide to your lender will need when you are ready to submit your application.
Submit Your Application and Review Disclosures
Once you have picked your lender and completed counseling it’s time to submit your reverse mortgage loan application.
In general, your reverse mortgage application will be similar to other loan applications you may have completed in the past. For example, you will still need to provide your personal information (and that of any co-borrower where applicable), as well as information about your current assets and income. Credit information will also need to be obtained and provided.
Understand that on average applications can take anywhere from 15-45 days to close. Processing times vary depending on the capacity and volume of originations your lender can handle, as well as when you complete and submit your entire loan package.
If you are applying for a home equity conversion mortgage (HECM), your application should indicate what payment option you want to go with. There are several payment options to choose from including a single disbursement, term, tenure, line of credit, or a combination.
Make sure you are comfortable with the reverse mortgage application and the numbers you discussed with your lender before you consent to move forward with the application process. It’s also a good idea to ask questions about and review any disclosures required to be provided to you by law.
Getting Assigned an FHA Case Number
When applying for a home equity conversion mortgage (HECM) or any other government-sponsored reverse mortgage program, it will probably need an FHA case number.
According to the U.S. Department of Housing and Urban Development (HUD), a case number can only be obtained by a lender once they have your completed loan package, and your application is active2.
Your lender will then proceed to request a new FHA case number by providing your name, date of birth, social security number, and property address to the agency2. The agency also requires they certify and attest to having received an active loan application for you and your property.
Contrary to popular belief, appraiser information is not required to be submitted when requesting a new case number.
Processing and Closing
Once you have submitted your reverse mortgage loan application. submitted your counseling certificate, and been assigned an FHA case number, your loan goes into processing.
During processing your lender will order a variety of services including title work, a credit report, as well as order an appraisal be completed on your property. Additional documentation to verify your assets and income may also be required.
Processing and the subsequent underwrite of your application are usually the longest part of the entire reverse mortgage application process. Things that can also delay the process include issues with title such as unpaid liens or judgements as well as appraisal issues.
Once the paperwork has been completed, services have been received, and your file has been reviewed and underwritten, your lender will approve your loan.
After receiving an approval, it’s time to provide any last few pieces of documentation and satisfy any remaining conditions before your loan goes to closing. After everything is cleared, your lender will set up an appointment to sign your final loan documents and disclosures.
Make sure to validate the final approved terms and conditions that match what you applied for or align with any changes made throughout the application process. Keep in mind that, except for purchases, you will have a three day right of rescission to change your mind about the deal should you decide you want to cancel.
After the rescission period, funds will be disbursed, and your new reverse mortgage will be recorded. There won’t be anything more to do than sit back, relax, and enjoy your new reverse mortgage.
Sources
1 https://www.ncoa.org/article/reverse-mortgage-counseling
2 https://hudgov.dynamics365portals.us/knowledge-details/?code=KA-04715
