For reverse mortgage loans:
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
The reverse mortgage process in 7 steps
Are you wondering how long it takes to get a reverse mortgage loan? Unfortunately, there’s no set answer. The timeline typically varies because the process requires multiple steps, including counseling, appraisals, underwriting, closing, and funding.
Borrowers may be able to speed up the process on their end by acting quickly to provide required information, documentation, and answers to any questions their lender may have. In this article, we’ll review what may happen during each step to help you prepare. As with any major financial decision, it’s smart to take your time with the process to ensure you’re fully informed.
1. Third-party counseling
Anyone who wishes to apply for a reverse mortgage must attend a mandatory third-party counseling session. The counseling is with an independent counselor approved by the Federal Housing Administration (FHA), part of the Department of Housing and Urban Development (HUD), who has a conversation with the potential borrower about the reverse mortgage responsibilities.
In the session, borrowers will receive written documentation that discloses each fee and have the opportunity to ask questions. Once the counseling requirement is fulfilled, the borrower receives a certificate of completion.
2. Complete and submit the application
To complete a reverse mortgage application, at minimum, the borrower will need to provide documentation verifying date of birth, proof of income, Social Security income, homeowner’s insurance, and a mortgage statement if applicable.
The lender may ask for additional information to ensure the borrower meets the loan’s eligibility requirements. Finally, a title check will be performed to ensure there are no federal liens on the property. Having your documentation prepared in advance could help speed up this process.
3. Home appraisal
Borrowers will meet with an independent, third-party appraiser to determine the home’s current market value. The appraised value, the age of the youngest borrower, and the interest rate help determine the loan amount the borrower could be eligible to receive.
The appraiser will visit the home to ensure it meets HUD’s minimum property standards, then submit a written appraisal report to the lender. The timeframe to schedule an appraisal may vary, depending on location and availability.
4. Underwriting
Once the appraisal is complete, underwriting reviews the full loan file to verify all requirements are met. The underwriter issues a decision: approved, approved with conditions, or denied. If the application is approved with conditions, additional documents may be required.
If approved, the loan is marked “clear to close.” At this time, the lender will prepare closing documents, which are sent to the title company to schedule signing.
5. Loan closing
The borrower will meet with a notary to sign the final loan documents, typically at the borrower’s home. The borrower should verify the loan amount, fees, and interest rate. Signing indicates acceptance of the loan terms. Loan disbursement details are confirmed at this stage.
6. Right of rescission
After closing, borrowers have three business days to cancel the loan without penalty if they change their mind. The borrower must send written notification to the lender during this period to rescind the transaction. If the borrower exercises their right of rescission, the lender has 20 business days to return any money the borrower has paid for the financing of the reverse mortgage loan.
7. Receive fund disbursements
Loan proceeds are disbursed three business days after the closing date. Funds are typically wired to the closing attorney or title company, who then disburses to the borrower. Any existing mortgage or liens being paid off will also be handled at this time.
Once the funds are disbursed, the loan enters the servicing phase, where the borrower can direct future questions to their servicing company.
[Disclaimer]
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
