Applying for a reverse mortgage might seem daunting at first, but the process is typically reasonably straightforward. If you’re interested in applying for a reverse mortgage, here’s what you need to know.
Where Can You Get a Reverse Mortgage?
Generally, you can get a reverse mortgage from a bank, credit union, or similar lending institution, as well as specific government agencies and nonprofits. Which reverse mortgage programs are available from each lender can vary. Some are FHA-approved to offer home equity conversion mortgages (HECMs), which are the most popular reverse mortgage option. Others only have proprietary or sole-purpose reverse mortgages.
What Do You Need to Apply?
Before you apply for a reverse mortgage, ensuring you’re eligible for the lending program you’re considering and having everything you need to proceed are musts.
First, you need to meet specific qualifications. Along with being at least 62 years old, you must own the house in question, and the property must serve as your primary residence. Additionally, you need substantial equity, the exact amount of which may vary depending on the reverse mortgage type and the lender’s requirements. Having enough income to handle upkeep and ongoing costs like property taxes, insurance, and maintenance is also essential.
In some cases, you’ll need to complete a counseling session with a HUD-approved counselor. This is a general requirement, so you may need to do it regardless of whether you’re pursuing an HECM or another option.
When it comes to the property, you’re only eligible for a reverse mortgage if it’s a single-family house or a multi-unit property with four units or fewer (and at least one unit must be your primary residence). HUD-approved condos or manufactured homes are also often eligible. Being delinquent on any federal debts can make you ineligible for an HECM, though it may not impact you if you’re looking for a reverse mortgage through another lender.
What Does the Application Process Look Like?
Generally, the reverse mortgage application process is similar to that of a traditional mortgage. You’ll have to provide personal information, such as your name, address, birth date, and Social Security number. Additionally, you might need to provide proof of homeowner’s insurance and a recent mortgage statement or copy of the title.
Next, there’s an appraisal phase. With this, an appraiser will check the property to establish its fair market value. That allows the lender to assess your current equity amount more accurately.
After the appraisal is the underwriting stage. During this time, the lender will perform specific checks – such as conducting title searches – and look for other issues, such as existing liens. If there are problems, the lender will usually work with the applicant to see if they’re resolvable before moving forward. If there aren’t any issues, the reverse mortgage proceeds to closing.
During closing, the lender will send finalized documents containing details about payment amounts, interest rates, associated fees, and other information regarding the agreement. That gives the applicant a chance to review everything before signing.
How Does the Lender Evaluate You?
In most cases, financial assessments conducted by lenders as they evaluate you are similar to traditional mortgages. However, a reverse mortgage lender isn’t concerned about your ability to repay. Instead, its main concern is whether you’re able to properly care for the property.
As a result, your income level, existing debts, and similar details are reviewed. The purpose is to make sure that you can cover ongoing maintenance and repair costs, property taxes, homeowner’s insurance premiums, HOA dues, and similar expenses associated with the property.
Often, that’s all that the lender focuses on when evaluating you. The rest of their focus is on the property itself.
