Reverse Mortgage Overview
What Is A Reverse Mortgage?
A reverse mortgage is a loan. You are borrowing against your home equity. However, unlike traditional mortgages, with a reverse mortgage you do not have to pay back the money borrowed as long as you are living in the home.
For many senior households, housing is usually the most costly expense as well as the most valuable asset. A reverse mortgage takes advantage of both of these facts. The loan enables you to eliminate ongoing mortgage payments, and for borrowers with sufficient home equity, access cash to use as needed or desired. However, the decision to secure the loan can be complicated and confusing.
Discover If A Reverse Mortgage Is Right for You!
Who’s Eligible for a Reverse Mortgage?
• At least one applicant must be 62 years of age.
• The home must be your primary residence, and an eligible property type.
• Must have sufficient home equity, or down payment if purchasing a home.
• You must meet the financial assessment requirements.
• You must receive HUD Counselling by phone or in person.
How are Reverse Mortgages Being Used?
• A reverse mortgage can replace a current mortgage and eliminate a monthly mortgage payment.
• A reverse mortgage can provide a line of credit that can actually grow over time.
• A reverse mortgage can be used to receive term or life payments.
• A reverse mortgage can provide a lump sum of cash.
• A reverse mortgage can be used to help buy a home.
• A reverse mortgage can set aside funds to pay for future property taxes and insurance payments on your property.
How to Get Started!
Reverse Mortgage Process
If you are thinking about getting a reverse mortgage you have probably done a lot of research online. To get a good idea if a reverse mortgage is right for you it helps to see your numbers, possible scenarios and have all your questions answered. That is why we recommend scheduling a free consultation.
During the consultation we will discuss how a reverse mortgage works, your specific options and answer all your questions. This free consultation is designed to be informational and can be done in person or over the phone. You will receive a personalized reverse mortgage quote package that includes estimated loan costs, rates, fees and the potential proceeds you may qualify to receive.
HUD Counseling Session
The next step after your consultation is scheduling the required HUD Counseling Session with a HUD Approved Counseling agency.
The Department of Housing and Urban Development (HUD) requires that all reverse mortgage applicants receive HUD counseling from an independent 3rd party counseling agency before applying for a reverse mortgage. There is an out-of-pocket expense paid to the HUD counseling agency. Sometimes this fee can be waived. Discuss the waiver when you select your counseling agency. This counseling session is available in many languages and may also be done in person or by phone.
Here you can find HUD.GOV’s list of Approved HUD Counseling Agencies.
Reverse Mortgage Financial Assessment
Effective on April 27, 2015, The Department of HUD introduced a financial assessment requirement for all reverse mortgage applicants.
If you are looking to apply for a reverse mortgage, you now have to demonstrate they have the ability to meet their monthly expenses. This change introduces both the financial assessment standard to qualify and the LESA (Life Expectancy Set Aside) to help reduce the risk of defaults or foreclosures on homes with reverse mortgages.
The Financial Assessment Standard Looks at Cash flow and Credit
1. There is now a cash flow analysis that is required, Lenders now look at an applicant’s monthly income vs. monthly expenses. They look at factors such as monthly property taxes, homeowner’s insurance, utilities, and other revolving expenses. After the financial assessment calculations are made, they are looking to see how much disposable income is left. A single borrower will need at least $529, while a couple will need $886 left over for living expenses per month.
2. There is also a derogatory credit standard. Lenders now look to see if the borrower has demonstrated a pattern of positive payment history for revolving credit, property taxes and homeowner’s insurance.
Reverse Mortgage LESA
If it is determined that the borrower does not meet the financial assessment standard, a LESA (Life Expectancy Set Aside) can be required. The LESA is used to set aside a portion of the reverse mortgage proceeds for future payments of property taxes and homeowner insurances for the homeowner. If there is not enough equity in the home to cover the LESA, the applicant would need to contribute cash at closing to qualify.
Although a LESA can be required, we have found many applicants opt to dedicate a portion of their proceeds into the LESA. To learn more about qualifying for a reverse mortgage call (562) 981-7700 to speak with a reverse home loan professional.
Reverse Mortgage Application Process
After completing your HUD Counseling, you will receive a counseling certificate, which means you can now apply for a reverse mortgage! You will need to contact us to begin the application process. During this time, we will start ordering the required documentation needed for your reverse mortgage, such as your credit report, title review, flood determination and any other required documents for the application.
During the application process your home you will need to have your home appraised to assess its current market value, the amount you are eligible to receive is largely based on your home’s appraised value. To complete the appraisal a 3rd party appraiser will visit your home to make assessments to the exterior, interior condition, compare recently sold properties in the area and other factors to come up with your homes assessed value. This process can take up to a week or more, and in some cases a second appraisal can be required.
The Approval Process
Once your application is submitted to underwriting the entire approval process can take up to 3 weeks. After all underwriting conditions are met and your loan is approved, you will be “clear to close” your reverse mortgage. You will just need to schedule a date and location convenient to you with the title company for closing your reverse mortgage.
Overall, the reverse mortgage provides many benefits, but the process can be time consuming. Many homeowners spend hours online researching the program, before making the first call. If you are considering a reverse mortgage, call us today (562) 981-7700 to schedule a free consultation with our experts.