The average reverse mortgage applicant speaks with a specialist before considering a reverse mortgage or completing an application. The homeowner typically researches reverse mortgages using resources from a local reverse mortgage specialist. The homeowner may invest one to two months meeting with the specialist in person and reviewing the good faith estimate and other loan documents.
Step 1. Initial Application
The application legally authorizes the lender to begin the application process but the lender cannot incur any costs on your behalf until Step 2 (counseling) is completed. The application is not binding and can be canceled at any point during the process. The application will specify the reverse mortgage fees, interest rates, and loan amounts.
Step 2. Reverse Mortgage Counseling
Even though the application has been completed, the lender is not legally permitted to incur any costs on the applicant’s behalf (such as ordering the appraisal) until the applicant has submitted a signed HECM Counseling Certificate. This is proof that the applicant has completed the mandatory counseling session with a HUD-approved counseling agency. The counseling can be completed before or after the initial application in most states.
Step 3. Appraisal
The appraisal establishes the legal value of the applicant’s property. The reverse mortgage appraisal must be conducted by an FHA-approved appraiser (not all appraisers have this approval) and it must follow a specific FHA format. This means that even if a homeowner has already had an appraisal, it will most likely have to be re-appraised at this point in the process.
Step 4. Underwriting
The lender will confirm the applicant’s legal ownership of the property by conducting a title search and purchasing title insurance. They will also work with the applicant to clear up any issues with trusts, unpaid liens against the title, bankruptcies, etc. Once the lender has finished underwriting and has approved the application, it’s status will be changed to “clear to close”. This means that everything has been completed and the final closing date can be set.
Step 5. Closing
The lender and the applicant set a closing date where a notary or attorney meets with the applicant to sign the final closing documents. This is the applicant’s opportunity to review the closing documents to make sure that the interest rate, fees, and loan amounts are the expected amounts. Once signed, the application goes into a three-day “right of rescission” period. This means that even though the closing has taken place, the applicant can still cancel the application with no penalty for three business days after the closing.
Immediately after this waiting period, the title company will issue a check to the homeowner (typically by overnight mail) if proceeds are available from the reverse mortgage. If the applicant was using a reverse mortgage to pay off an existing mortgage, the title company will also send the mortgage payoff amount to the lender.
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