I often say that obtaining a reverse is a process. This is because there are a number of steps involved and in this article I want to lay them our
for you so you know exactly what to expect.
Education
Most people have heard about reverse mortgages. Unfortunately, it’s typically something inaccurate and negative. Because of this, I am sure
that a lot of people never even take the first stop of getting accurate information. A couple of very good resources are my web-site at www.reverse-mortgage-colorado.net and the web-site for the National Association of Reverse Mortgage Lenders at www.reversemortgage.org .
I’ll bet you didn’t even know there was such an organization. Both of these sites are very good and have a lot of excellent and accurate information
so you can make an informed decision.
Shop For A Lender
Once you think you understand the basics about reverse mortgages, you will want to meet with a lender to get an accurate quote of how much you can receive
and what the costs and interest rate options are. There are on-line calculators that will give you a ball park idea, but for an accurate quote,
you’ll need to speak to a lender (or multiple lenders). You’ll want to compare the quotes but be forewarned, not every lender is as upfront as
I am. Also, never, I repeat – never give your Social Security number to a lender the first time you talk with her. If she tells you that
she has to have it to give you the quote, say no and hang up. Shopping for a reverse mortgage can be a process in and of itself. I talked
about it for 90 minutes on my radio show and summarized it in an article called “How To Shop For A Reverse Mortgage”
Counseling
Counseling is required for all reverse mortgage loans, even non-FHA loans. Reverse mortgages are the only financial product that require the applicant
to talk with an independent third-party. This is because reverse mortgages are designed for older homeowners and we want to be sure that they
understand the ins and outs of the product as well as alternative options such as selling the home and moving. We also want to make sure that
you’re not getting talked into something that is not in your best interest. Lenders are required to provide you with a list of local counselors
as well as ones that do it over the phone. A lender is not supposed to tell you who to call and certainly should not have the counselor call
you. You should decide if you want to do it in person or over the phone. Here is a link to the list of “in person” counselors in Colorado.
Application
If you decide to proceed with the loan, you will now need to complete an application. You will need to decide on a lender at this point. The
lender will get your Social Security number at this time in order to perform a credit check. If you are not sure who to use for your lender,
do not give out your Social Security number to multiple lenders. Make your decision of who you want to use and then give him the number.
Please note that you are NOT OBLIGATING YOURSELF to anything by signing an application for a reverse mortgage. You can cancel the process at ANY TIME throughout the process.
The lender you choose should provide you with a list of documents that he will need to have copies of, such as your driver’s license and Social Security
card, mortgage statement, Social Security award letter and bank statement, and homeowners insurance information.
Appraisal
The lender should order the appraisal right away after you sign the application. Lenders can no longer talk with appraisers directly. They
must go through an “Appraisal Management Company” (AMC), and the AMC will contact the appraiser and have him contact you to schedule the appraisal.
Unfortunately, FHA made a change to the appraisal process effective October of 2018. All appraisals must be reviewed by FHA using their proprietary
automated valuation model, (AVM). FHA has the final say on all FHA endorsed appraisals. This means that if the appraisal on your home does not
fit within the parameters FHA has set, (they don’t tell us what these parameters are), they will require a second appraisal by a completely different
appraiser. The lender will have to use the lowest appraisal value and you could be charged for both appraisals. This happens on approximately
25% of the file submitted. Once the lender has the appraised value, she will contact you to let you know what the value is as well as send you
updated numbers (based on the actual appraised value) and she also must provide you a copy of the appraisal at least three business days prior to closing.
Loan Processing
Once the lender has gathered your documentation and had you sign all the forms, he will then begin to process the file. This includes ordering the
appraisal (see above) as well as verifying your income and pulling your credit to make sure you qualify. He will also get a title report to make
sure there are no liens on your home that he wasn’t aware of. Once this is complete and he has the appraisal, he will submit the file for approval
to an “underwriter”. This person makes sure everything is done by the book, as far as FHA is concerned, and then issue a “conditional approval”.
It’s called this because the approval is conditional on the lender getting all the documents that the underwriter asks for before the “final approval’
is issued.
Closing
Once the “final approval” is issued, the lender will call you to schedule the closing. This is nothing more than signing the papers all over again.
Only this time the numbers are final. Please note that the loan officer should be at the closing with you if at all possible. Once the
final loan papers are signed, you’re done…Well, almost. All refinance mortgages (forward or reverse), are not final until three business
days after the final signing. This is called the “Three Day Right of Rescission”. The loan does not become final until these three days
have elapsed. You can still cancel the loan during this time. It’s for this reason that the lender cannot issue any funds to you
or anyone on your behalf (such as the exiting mortgage you are paying off with the reverse mortgage). Once these three days have elapsed, the
loan is final.
Follow Up
You will receive a monthly statement showing your loan balance and any funds you still have available in a line of credit. If you opted to receive
a monthly payment, these will arrive in your bank account the evening of the first business day of each month. Hopefully you chose to deal with
a loan officer like me who’s been in the reverse mortgage business for several years and will still be around if you have any questions. You
can call the company servicing your loan, but if you want to meet in person with the loan officer months or years later to ask questions, he should
be willing to meet with you.
A reverse mortgage is most likely the last mortgage you will ever have and quite frequently, as you age, you and your family will have more questions about
this loan. You should feel safe that the loan officer you worked with will still be around to answer them for you.
I could probably have gone on for a full page about each one of these topics, so if you have any questions, please feel free to reach out to me and I will be happy to answer your questions.
Thanks for taking the time to better understand this wonderful program.
