How does the Reverse Mortgage process work
Do your research. Talk to a capable reverse mortgage specialist who has experience working with seniors. Your reverse mortgage specialist should be a member of your local Better Business Bureau (BBB) and the NRMLA (National Reverse Mortgage Lenders Association). Jack Tenold's office is an accredited business with the BBB and Jack is a long-standing member of the NRMLA.
Federal regulations require that reverse mortgage borrowers receive FHA counseling. Counseling appointments typically take about an hour and may be handled in-person or over the telephone.
Jack and his licensed staff will assist you in completing the loan application and help you to decide your preferred method of payment.
Your options include:
- Monthly income for a fixed term, or life
- Line of credit
- Lump sum
- Any combination of the above 3
- A credit report
- A title report
- An appraisal,
- Lien payoffs, if any
- Financial assessment
Once your reverse mortgage specialist has completed the application and collected the required documentation, your loan package will be submitted for final approval.
Closing documents are signed at a third party location - often a title company, an attorney's office or sometimes in your home. Typically, most closing costs are financed by the loan.
Once you have signed your closing documents, and after a 3 day recission period, the funds are disbursed. If you have a current lien, it will be paid off at that time. You will begin receiving payments according to the payment option you selected to include automatic deposit.
You will not be required to make monthly payments during the term of your loan (however, you must continue to pay your property taxes and your homeowner's insurance and other home expenses). The reverse mortgage becomes due and payable in full when: 1) the home is no longer being used as a primary residence, 2) it is sold, or 3) 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 during my reverse mortgage counseling appointment?
Accredited housing counselors work with seniors to help them evaluate the viability of a reverse mortgage loan by looking at the borrower's:
- Current budget
- Monthly income
- Personalized effects of the loan
- Interest rates
- Associated fees
HUD-approved HECM housing counselors are required to use loan comparison and analysis software that meets the requirements established by the AARP. Certified counselors must also adhere to the AARP Foundation Reverse Mortgage Education Project counseling policies and procedures. Because it is their job to help insure that you are making a responsible financial decision, they may also review financial options with you.
The AARP Foundation Reverse Mortgage Education Project regulates a national network of HUD-approved HECM housing counseling agencies by administering the exam that certifies counselors for HUD-approved HECM housing counseling agencies. HUD's National HECM Counseling Network consists of the exam's highest scoring counselors. That means that that you can be sure that they are charged with looking out for your best interest.
What can I expect to be included in closing costs?
Typically, closing costs are financed into the reverse mortgage loan. Some of the closing costs commonly charged to a reverse mortgage borrower can include:
- Appraisal: Property appraisal for value.
- Credit report: Checks for any judgments or tax liens against the borrower.
- Document Preparation: Preparation of all final closing documents.
- Escrow, Settlement or Closing: Typically includes a title search and any other required closing services.
- Flood Certification: Determines whether or not the residence is built on a federally designated floodplain.
- Mortgage Insurance: 2.0% of the value of the home and then 0.5% of the outstanding balance each year.
- Recording: Fees associated with recording the mortgage lien with the County Recorder's Office.
- Title insurance: Protect owner and lender against any loss due to disputes over property ownership. ownership of a property – the larger the property value, the higher the cost of the title insurance.
How do I avoid Reverse Mortgage fraud and scams?
Talk to an FHA counselor. Start by scheduling an appointment with a HUD-approved reverse mortgage counselor. It is their job to help you understand reverse mortgages and help you evaluate your situation. So don’t pay for information that should be free.
Look closely at the terms and conditions. Watch out for unethical terms and extraneous fees. Your HUD-approved counselor can help you look for these. Don’t be afraid to ask. And if you are concerned that a lender may be violating the law, report them to your reverse mortgage counselor.
REVERSE MORTGAGE -- FACT OR FICTION
My health would disqualify me.
FALSE -- There are no health requirements.
I still owe on my home, so I wouldn’t qualify.
NOT NECESSARILY -- You may still qualify. The proceeds of the reverse mortgage loan may be used to pay off the existing mortgage.
If I take out a reverse mortgage, the bank will own my home.
FALSE -- The lender's interest is limited to the loan balance and they will NEVER take control of the title. You and your heirs/estate retain ownership of the home.
I can’t get a reverse mortgage loan without it affecting my pension, Social Security or Medicaid.
NOT NECESSARILY -- A reverse mortgage will not affect most means-tested benefits. HOWEVER, be sure to check with your local area agency on aging since programs do vary by state.
I would end up owing more in taxes.
FALSE – All proceeds associated with a reverse mortgage are tax-free because they are considered borrowed funds. (Always check with your tax advisor)
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 a "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. However, you may change how you receive funds.
Reverse mortgages 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 seniors who have substantial equity in their home combined with a significant portfolio.
A reverse mortgage would end up being a burden to my kids.
FALSE -- Borrowers have adequate time to pay off the reverse mortgage if they choose. The loan may be repaid by refinancing the existing reverse mortgage or by selling the property. Any remaining proceeds would then belong to the heirs or the estate.