The Reverse Mortgage Process Explained

 Picture this… you’re a senior homeowner and nearly every time you go to your mail box, you get 1-5 solicitations for a reverse mortgage. You keep all the postcards and letters handy in case you decide to make a decision to proceed with a reverse mortgage. You’re starting to learn a lot about the program just from all the direct mail pieces you have received. Your phone is starting to ring almost daily with reverse mortgage telemarketers. You hear the buzz on the news and with your friends that reverse mortgages have created. You see TV commercials with Robert Wagner, James Gardner, and Pat Boone among many others. You now have a stack of solicitations higher than three Los Angeles phone books and your interest has peaked. You know you want to start to look into a reverse mortgage but you don’t know what steps are involved or how to you proceed with a reputable company? Yes you do have hundreds of mail pieces, but what company will truly offer you the best service and best fee structure.

The above scenario is very common. The entire reverse mortgage process can be very overwhelming for some people. The decision of what company to choose to the process itself can cause a lot of seniors who would greatly benefit from a reverse mortgage to turn a shoulder and not even explore the idea. Fact is, with the right reverse mortgage lender, a reverse mortgage may very well be the easiest transaction a lot of seniors have ever been a party to.  

The first step is to choose a reputable company. Look towards friends and family who may have received a reverse mortgage. If you are unaware of anyone who has received a reverse mortgage, or perhaps you friends or family didn’t have a good experience with their reverse mortgage professional, look to NRMLA (National Reverse Mortgage Lenders Association). Members of NRMLA have subscribed to their code of ethics and will always deal in a professional manner with their senior clientele.  

Once a reverse mortgage lender or broker is chosen, it’s time to start to learn more about reverse mortgages. The first conversation you have with a reverse mortgage professional will generally be to gather all important information from you such as birthday, property address, home value, existing loan amount and most importantly the reverse mortgage professional will explore with you why you’re looking into a reverse mortgage to help determine if it’s the right decision for you. At this point in time, you and the advisor will discuss how much money is available to you as well as all the fees involved. They will also send you a quote in writing that will contain 4 items. 1. Reverse Mortgage Estimates page, which shows a comparison of three programs. 2. A Good Faith Estimate that shows a breakdown of all fees involved. 3. An Amortization Schedule that shows how the loan balance grows over time. 4. A TALC (Total Annual Loan Cost), which shows the cost of the loan over time.  

Now, after the first discussion, this is a good time to discuss the reverse mortgage with friends, family or a trusted advisor. They may also have questions for the reverse mortgage professional and it’s a good idea to have them touch base to make sure that all questions are thoroughly answered.  

Next, if you decide to proceed, you will need to go through a counseling session done by an independent third party counselor. Counseling costs on average $125 and is due at the time of your counseling session. If you have a hardship and can’t pay for it upfront, please notify your counselor. Your reverse mortgage professional should provide you with a list of at least 5 counselors that are in the proximity of your home. This counseling session can be done over the phone, or in person. At your counseling session, the counselor will review the 4 items that the reverse mortgage professional sent you earlier. The counselor will make sure you understand the reverse mortgage program as well as other alternatives to reverse mortgages.  

After counseling is complete you will receive a counseling certificate in the mail. You will need to sign it and return it to your lender or broker. Once the lender or broker has the certificate, then the process can continue. The next stages are like any other mortgage. The lender will order an appraisal, title report and open escrow. In the mean time, the reverse mortgage professional will take a full application from you, either in person or over the phone, which takes about 10 minutes. Just a side note, the lender can take the application prior to your counseling session, however there can be nothing done by the lender that would incur an expense to you prior to counseling.   Once the lender has taken your application, it will be sent to you for signatures. Another point to note here is that signing the application does not obligate you to do the reverse mortgage. You may back out at any point in time during the process for whatever reason. Attached to the application will be a list of items required by the lender such as verification of your social security number, a photo ID, a copy of your mortgage statement (if you have a mortgage), copy of your trust (if applicable), copy of the Power of Attorney (if applicable), copy of your homeowners insurance declaration page, etc. All you need to do is sign and return the requested items specific to your loan scenario.  

When the lender receives all items from you, the appraisal, title report and any other necessary items, the loan will be submitted to underwriting. During this stage, the underwriter looks at the file and makes a determination if any other items will be necessary. If so, they let the lender know, who in turn will notify you of any additional items needed. Once those items are met, the underwriter will issue a clear to close.  

Once a clear to close status has been received, you will receive a phone call from the reverse mortgage professional verifying how you would like to receive your loan proceeds as well as setting up a time to sign your final loan documents. When it comes time to sign you final loan documents, most lenders will send someone to your home to accomplish this task.

After the loan documents are signed, they are sent back to the lender for final review. After your three day right of rescission is up, if all outstanding items have been met, the lender will fund your loan. Once the loan funds, title will receive a wire from the lender. They disburse the funds as requested and release the loan to record with the county.   Then you are free to enjoy your loan proceeds however you see fit. Your job after the loan closes is two fold. One, enjoy life to the fullest and two, spread the word about reverse mortgages to those who you feel could benefit from the product. Oh yeah, if your reverse mortgage professional did a good job, feel free to refer him/her to your friends and family.