There are a number of things that take place during the application process for a reverse mortgage. In general, it can take anywhere from a month to six weeks for the entire process, with specific steps that take place all along the way. If you are considering the possibility of taking out a reverse mortgage, here is an idea of what to expect.
Before ever submitting an application, it is important to do some research. This will help you get an idea of what is offered by different lenders, the requirements you must meet in order to increase your chances for an approval, and in general to educate yourself on what responsibilities you assume once you have signed the mortgage contract. It’s a good idea to begin this research at least six months before you actually submit an application to any lender.
The process of filling out and submitting the initial application provides the lender with authorization to begin the evaluation process to see if you do meet their basic criteria for approval. At this juncture, the verification is somewhat broad and involves mainly confirming the basic data included on the application form. During this phase of the application process, the lender is not authorized to incur any costs on your behalf as part of the initial evaluation.
Before the application process can advance to the next phase, you will be required to undergo reverse mortgage counseling. This counseling is necessary to ensure you understand the nature of a reverse mortgage, your obligations and rights in connection with the mortgage arrangement, and what rights and responsibilities the lender brings to the table. The counseling must be provided by an agency that is certified and approved for this purpose by the Department of Housing and Urban Development, also known as HUD.
Upon successfully completing the counseling, you are issued what is known as a Home Equity Conversion Mortgage or HECM certificate. This certificate must be provided to the lender in order for the application process to move forward. In some states, it is possible to receive the counseling before submitting the initial application, a strategy that can help to expedite the process.
Next, a period of evaluation or appraisal will commence. This phase is necessary to establish the worth of the property, based on such factors as the integrity of the overall structure, location, condition of plumbing, wiring, and ductwork for heating and cooling equipment, and the condition of the foundation. Even details such as the condition of window sashes, support joists, and bathroom fixtures will be taken into account. A certified agent that is chosen by the lender must conduct the appraisal. Any prior appraisals ordered by the homeowner, even if they took place recently, are not considered acceptable.
The next phase of the application process is known as the underwriting period. During this time, the lender will utilize various resources to confirm your ownership of the property. This will involve conducting a title search that helps to determine if there are any other claims on the title. At the same time, the lender will also secure title insurance that will protect you and the lender in the event that a claim emerges later in the process.
This phase is in the best interests of all parties concerned. If the title search yields some sort of irregularity in the history of the property, the lender notifies the applicant, making it possible to take appropriate legal action to correct the problem and thus remove any claims to the property by other parties. A search of this type will also uncover issues such as liens on the property, making it possible for the lender to work with the applicant to address these issues before proceeding.
Once the underwriting phase is complete, the final step of closing takes place. With closing, the lender and homeowner go over all the terms and conditions contained in the reverse mortgage agreement. This includes addressing the fees and charges associated with the mortgage, the method of payment accepted by the homeowner, and the responsibilities that each party is assuming by entering into the contract. Once both parties are satisfied with the terms and conditions, the document is signed in the presence of an attorney or a notary public.
Even after the signing, there is still a short period in which the homeowner can choose to cancel the agreement. This period is defined as three business days from the day that the contract was signed. Once this period has passed, the payment or series of payments takes place and the homeowner can begin to enjoy the benefits of having a reverse mortgage on his or her primary residences.
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Wesley Pritchard is a freelance writer who writes about the mortgage industry, often focusing on a specific topic such as a reverse mortgage.
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