Reverse Mortgage Application Process
Obtaining a Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage loan, is a major decision. It is important to work with a lender you trust, and one that can provide you with a variety of HECM options. Our HECM loan specialists will work with you through the entire loan process, and will be able to answer any questions you may have.
Steps required to obtain a HECM
The following are the steps required to obtain a HECM. For more information about any of these steps, please contact us today.
- Education. A loan specialist will provide you with the HECM options that may fit your needs. He or she will explain the terms, benefits and costs of each product and borrower responsibilities through the life of the loan.
- Counseling. Reverse mortgage counseling is required for all borrowers. Because HECMs are only available to older Americans and involve what is often their biggest asset, counseling helps make sure borrowers understand all aspects of their HECM. Lenders are required to provide a list of independent, HUD approved Reverse Mortgage counselors to all borrowers. Counseling sessions generally last around 90 minutes. Counselors will discuss the application process, the borrower’s responsibilities, and the lender’s responsibilities. Counselors will also make sure the borrower knows about other financial options that may better fit their needs. Close friends or family members are encouraged to attend the session with the borrower, to ask their own questions and to better understand the process. When the counseling session is over, both the counselor and the borrower will sign a counseling certificate confirming the counseling requirement has been fulfilled.
- Application. Before completing an application, the borrower must select a lender. Borrowers will generally work with the same loan specialist throughout their application. They will be required to provide some personal information and will be asked to choose how they want to receive their funds. Options include fixed monthly installments, a lump sum, a line of credit, or a combination of these options. (Borrowers who elect a fixed-rate loan will receive a single disbursement lump-sum payment. Other payment options are available only for adjustable rate mortgages.) Lenders will also analyze the borrower’s financial situation to make sure they’ll be able to afford to pay ongoing home expenses like property taxes and insurance and home maintenance costs. All income sources will be considered. Should the lender decide that a borrower might not be able to afford future expenses, they will set aside a percentage of the borrower’s loan funds to pay for those expenses.
- Loan Process and Underwriting. A home appraisal is required to process the loan. The appraisal will be reviewed and approved by the loan underwriter. The loan underwriter also reviews all information provided by the homeowner and the lender. They will make sure that the loan complies with guidelines before granting conditional approval of the loan.
- Closing. After the loan application has been approved, the borrower will sign the closing documents with a title agent or attorney, depending on their state’s regulations. It will take a few days to schedule a closing date and make sure all involved parties receive the necessary documents.
- Disbursement and Funding. The borrower has three days after signing the closing paperwork to change their mind, known as the Right of Rescission period. After this, the loan funds will be disbursed. Any existing mortgage will be paid off and a new lien is placed on the home. Only the HECM for Purchase option does not include a Right of Rescission period. The funds from the HECM can be used in any way the borrower chooses. Borrowers can change how they receive their remaining funds any time they’d like by filling out a new Payment Plan Agreement from their servicer and paying a modest fee. The new payment plan will go into effect on the first business day of the following month.
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