How does the Reverse Mortgage process work?
When it comes to reverse mortgages it is really important that you do your research and educate yourself. There is a lot of information out there, so the more you read the more you can be confident about what exactly goes into a reverse mortgage. When you look for a lender make sure you don’t feel pressured to make a decision. Work with someone who will take the time to be patient with you, and realize that you are making a decision that could effect your retirement.
When you get a reverse mortgage, a requirement is that your go to a certified housing counselor. This is an actual federal and state law that requires this counseling. Even though this is something you have to do, it is something that is free. You can schedule your reverse mortgage counseling over the phone or in person. Typically the appointments take about an hour.
As a reverse mortgage lender I will need you to complete a reverse mortgage application. There are also a few options that you’ll need to choose on how you’ll receive your payment.
These are you options:
1. Monthly income for a fixed term, or life
2. Line of credit
3. Lump sum
4. Any combination of the above 3
As your lender I will order:
A credit report
- A title report
- An appraisal,
- Lien payoffs
Once I have received and completed all the required documentation, I will submit your loan package to my financial organizations that will be underwriting the loan, for final approval.
Once your reverse mortgage loan has been approved and signed, at that point the loan’s initial interest rate will be determined. The closing costs in most cases will be financed by the loan.
If for some reason you decide to change your mind about going through with the reverse mortgage, you do have a 3 business day period to change your mind and cancel the loan after its closed. After that 3 day period the funds are disbursed, including any amount that will be applied to a previous lien on the property. At that point is when you will start to receive payments according to the payment option you selected.
With a reverse mortgage you will no longer need to make any monthly mortgage payments. Thereverse mortgage becomes due and payable in full once: 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 from my housing counseling appointment?
I will work with you to help you evaluate if a reverse mortgage is the right option for you, by looking at your:
- Monthly income
- Loan risks
- Loan benefits
- Interest rates
- Associated fees
As a HUD-approved HECM housing counselor I am required to use loan comparison and analysis software that meets the requirements established by the AARP. I also adhere to the AARP Foundation Reverse Mortgage Education Project counseling polices and procedures. It’s my job to help insure that you are making a responsible financial decision and I can review the financial option with you.
The AARP Foundation Reverse Mortgage Education Project regulates a national network of HUD-approved Oregon 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:
Credit report:Checks for any judgments or tax liens against the borrower — under $20.
Survey: Ordered to verify legal property boundaries. Assures that any adjoining property has not intruded onto the borrower's property – generally under $250.
Flood Certification:Determines whether or not the residence is built on a federally designated flood plane — under $20.
PestInspection: Determines whether the home is infested with any wood-destroying organisms, like termites or carpenter ants — generally under $100.
Title insurance: Protect owner and lender against any loss due to disputes over property ownership. The larger the loan amount, the higher the cost of the title insurance.
Escrow, Settlement or Closing: Typically includes a title search and any other required closing services — $150-$450
Document Preparation: Preparation of all final closing documents — $75-$150
Recording:Fees associated with recording the mortgage lien with the Oregon County Recorder's Office — $50-$100
Courier:Overnight mailing of any documents between the lender and the title company or loan investor — generally under $50
How do I avoid Reverse Mortgage fraud and scams?
Talk to your counselor.Start by scheduling an appointment with a HUD-approved reverse mortgage counselor licensed for Oregon state. 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.
You have 3 days to change your mind. Typically, you have three business days after closing on the loan to back out — for any reason.
REVERSE MORTGAGE — FACT OR FICTION
I would need a steady income to qualify.
FALSE — There are no income requirements.
I would need to be debt-free to qualify.
FALSE — There are no credit requirements.
My health would disqualify me.
FALSE — There are no health requirements.
I still own 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 debts.
If I take out a reverse mortgage, the lender agent 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.
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 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 senior that has substantial equity in their home.
A reverse mortgage 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 by refinancing the existing reverse mortgage, or by selling the property. Any remaining proceeds would then belong to the heirs, or the estate.