The entire reverse mortgage application process typically takes a total of about 30-45 days right from the day that the processing starts and it has only five main steps. The most extended aspect of the reverse mortgage process is the time frame of decision-making that would lead up to the application.
Homeowners would typically go through materials on reverse mortgages that they can find on the internet in order to get acquainted and ensure that they are getting the best possible deal. Of course, they would also find out how to apply for a reverse mortgage.
Sequel to this, they would typically consult a local reverse mortgage consultant to get more clarification. A month or two may then pass with the homeowner meeting up with the consultant and scrutinizing the good faith estimate as well as other reverse mortgage documents.
1. Initial Application
The process begins with a brief phone call during which the borrower will be asked to provide some information for the initial application such as their date of birth, address, and mortgage statement information. Using this information, the loan officer assesses the borrower’s eligibility and walks them through their potential loan options. This initial application is not a binding document, meaning the borrower has the ability to cancel at any point in the process.
2. HECM Counseling
To ensure that the borrower is well equipped to make informed decisions regarding the financing of their home, Home Equity Conversion Mortgage (HECM) counseling is required for all applicants. An uninterested third party agency approved by the Department of Housing and Urban Development (HUD) is responsible for counseling. Lenders typically provide a list of recommended counselors to their prospective applicants; however, applicants are permitted to use any counseling service they wish, as long as they are HUD approved. The applicant is responsible for any counseling fees and is valid for 6 months.
These counseling sessions are typically conducted over the phone and last about an hour. Throughout the session, the counselor asks questions, provides information and answers any questions the borrower may have regarding HECM. The goal of the session is to ensure that the client is a good candidate for a reverse mortgage and ensure they are entering the reverse mortgage process with full disclosure. The third party counselor provides guidance, keeping the borrower’s finances in their best interest.
3. Application and Documentation Needed
Once counseling had been completed, a notary would be dispatched to the home of the borrower to assist in signing the counseling certification as well as the initial documentation. For this step, your reverse mortgage consultant would provide a list comprising all the documentation that you would be needing as well as set a time to complete the application. The notary, when they visit would request for copies of these documents. Here is a list of the documents that would typically be required for this process:
- HUD Counseling certificate (original)
- Photo identification (example – driver’s license, passport, state ID)
- Proof of date of birth (example – birth certificate, driver’s license, passport)
- Proof of Social Security Number (example – Social Security or Medicare card)
- Deed to the property
- Most recent real estate tax bill
- Homeowner’s insurance policy (copy of declaration page only)
- Most recent statement for any mortgages, home equity line of credit, or other liens
- Documentation to support income and financial asset resources
- Authorization to request a credit report
4. Appraisal Process
Once the signed application, counseling certificate and supporting documents have been received, the lender is permitted to move forward in ordering the appraisal. The appraisal provides an updated value of the applicant’s property and aids in determining the size of the loan.
For a reverse mortgage, the appraisal must be completed by an Federal Housing Administration (FHA) approved appraiser and carried out using a sales comparable approach. If the borrower has had an appraisal in the past, it typically does not meet the guidelines specific to a reverse mortgage. For this reason, an updated appraisal is generally required. The borrower may or may not be responsible for any appraisal related charges. The sales comparable approach considers the sale price of comparable homes in a 1 mile radius which have sold within the past 6 months. If no suitable comparable sales can be found, the range and time frame will increase until a comparable is found.
In regards to the appraisal, actual improvements can add value to the home; however, these improvements should not be confused with maintenance work. Updated kitchens or bathrooms fall under actual improvements and can be reason for a higher appraisal value. On the other hand, a new roof, water heater, or landscaping are considered maintenance and do not add value to the home.
To distinguish actual improvements from maintenance and provide an accurate appraisal, the appraiser is required to enter the home, inspect every room in the home and take pictures for further review. Public records aid the appraiser in considering additional structures or upgrades that may require county/city permits.