What Happens Once You Apply for a Reverse Mortgage
If you have applied for a regular mortgage, you will find the process for a reverse mortgage similar. As of April 27, 2015, lenders are required to gather Income, Expense and Credit information for each borrower.
Typically, most lenders will gather your information and enter it into their computer which will then print out the application as well as various disclosures. This stack of paper is usually in the range of 80 pages. Describing this stack in person, I usually hold my hand about a foot from the top of the table along with a smile. No doubt, it is a lot of paper.
Depending on how you are working with your lender, the documents will be overnighted to you, the lender may come to your home or you might meet your lender in their office. You will be asked to sign many or all of the pages. In general, what you don't sign now will need to be signed at closing.
Once the application process is started, the loan originator or their processing facility will order the appraisal, request a title report, set up escrow and start dealing with all the paperwork required by regulators.
There will be an appraisal. FHA appraisals used to be very detailed and frequently required a number of additional inspections. Most lenders now rely on the appraiser to identify any issues that need further inspection. This applies to pest inspections, roof inspections, septic inspections, well inspections or home inspections. If something catches the appraiser's eye (or nose), the lender will usually request an inspection to clear the item in question.
There may be some repairs required as a result of those
inspections. In most cases, if any repairs are required, they
may usually be completed after the close of the loan but within six
months of the closing. (This is not the case with a Purchase
HECM. Repairs need to be completed prior to close of escrow). Funds from the reverse mortgage can be
set aside plus an extra 50% of the amount needed to accommodate
possible estimate over runs. Health and safety issues are the
exception and need to be completed prior to the close of escrow.
(An example would be a home with only one bathroom and the toilet
doesn't work.) If for some reason the loan doesn't close, the
borrower will still be responsible for their fees.
If you have a private well or septic system on your property, a water test and/or a septic inspection may be required. If that is required, the lender will let you know. Again, if for some reason the loan doesn't close, the borrower will still be responsible for their fees.
It will not be known exactly how much money you will be receiving until the loan is ready to close. Several variable factors determine the net amount you will receive. This includes the expected interest rate, the appraised value if less than the FHA limit, the cost of repairs to your home (if any) and the amount of any payoffs for liens against the property (if any). Once the lender has all of this information, they will be able to advise you of the amount you will receive and will ask you how you want to receive the funds. Any figures given to you prior to the closing date are only estimates.
Most lenders have a team of several people in place to process your loan. In addition to your loan originator (the person you worked with to start the application process), there will be a processor, underwriter, closer, funder and possibly some others depending on the size of the organization. In a very small organization, these functions may all be handled by one person.
The Underwriter will examine your Income, Expense and Credit documents. Specific guidelines mandated by HUD will be examined to determine if it appears you have the ability and inclination to stay current on property taxes, homeowners insurance and normal maintenance. They have the ability to take into account extenuating circumstances and compensating factors.
Once all the details have been settled and the conditions the underwriter has required have been taken care of, the loan file will go to the closing department. Before they can create the final documents, they will need to know how you want your funds and when you are available to sign the documents. Remember, there are three ways you can take your funds - lump sum, monthly payments, line of credit or a combination of the three.
Once all this has been determined, they will send a big stack of
documents to you or to the escrow office to coordinate the final