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Reverse Mortgage Process and Top Myths Explained

In this article we will discuss The process of Getting a Reverse Mortgage & Busting the Top Myths Associated with It.

A reverse mortgage is a home equity loan that is offered to senior homeowners that are 62 years old or above. Rather than making monthly payments to the lender, the borrower receives mortgage payments in return for a part of their equity in the home. This gives seniors a running income at a time when they need it the most. Therefore, it is no surprise that a reverse mortgage has become known as a type of retirement planning for seniors that own a home.

All such loans are insured by the FHA (Federal Housing Administration) and are found to be beneficial by people who:

  • Do not wish to move from their current residence
  • Have trouble affording the maintenance of their home and paying for insurance and taxes
  • Want to improve the regular cash flows

Hence, for an individual looking to pay off a debt or keeping up with the regular expenses, a reverse mortgage can prove to be an ideal solution. There is no requirement to pay off the loan balance as the lender continues to make payments based on the percentage of home equity. The amount will only be paid out to the lender if the homeowner dies or decides to sell the house or move out. It is the responsibility of the homeowner to make regular payments for taxes as well as insurance.

The process of Getting a Reverse Mortgage

1. Understanding

The first step is to gather all the information about how a reverse mortgage works. After that, you must find out whether this option is the only suitable solution for you. Many experts suggest that the reverse mortgage should be chosen as the last resort. Gather all the necessary information necessary to go forward with the process.

2. Counseling

Next, you will seek counseling from an agency that is approved by the HUD or serves at a national level. This is an essential step without which lenders are not able to help you get a reverse mortgage. In this counseling session, the agency determines whether a reverse mortgage is the only appropriate solution in your case. They will also consider the financial effects of you entering into such an agreement with the lender and if it will have an impact on what is left to the heirs.

3. Appraisal

If a reverse mortgage is approved for a particular homeowner, the next step is to get the property appraised from an FHA approved entity only.

4. Underwriting

Next, it is up to the lender to carry out all the necessary research and approve the homeowner for a reverse mortgage. During this time, the lender also helps the owner take care of any issues that need to be resolved before the closing.

5. Closing

All the paperwork is then filled out and the amount of payment is confirmed and approved both by the lender as well as the borrower. There might be closing costs during this process which will be included in the total loan amount.

6. Disbursement

If within 3 days of signing the paperwork, the homeowner does not decide to cancel the reverse mortgage, the lender will go ahead and disburse the amount. It is up to the borrower to choose how to use the money.

Common Reverse Mortgage Myths

The Government/Lender Holds Ownership

The property remains under the ownership of the homeowner and the loan is only given on a part of the home equity held by the client. The fact that the expenses related to maintenance and tax are still considered to be the responsibility of the homeowner reflects the state of ownership in the case of a reverse mortgage.

You Cannot Qualify If You have More Debt

The only change that a current debt brings when you talk about reverse mortgage is that the proceeds of your loan need to be used to pay off that debt. Other than that, your eligibility isn’t affected by having any current dues.

There are Monthly Payments

As long as you are taking care of insurance and taxes, you do not need to make any payments to the lender. Rather, in the case of a reverse mortgage, it is the lender who gives out the payment to the homeowner. The only case in which you must give back the loan amount is when you decide to sell or move out of the house.

You Can Lose the Home at Anytime

Reverse mortgages are approved by HUD/FHA, which clearly state that the homeowner cannot be asked to move out of the house at any point in time. As a homeowner, you are only responsible to choose the house as your primary location and are not allowed to move out of the house or sell it during this time period. Also, you must continue to pay taxes and insurance.

Lenders are Interested in Selling the House

You can stay in the house as long as you wish by making regular insurance, tax, and other payments. The lender only asks for repayment in case you decide to sell the house or move out.

The Home will not be Inherited by the Heirs

After the demise of the homeowner, the heirs can pay off the loan amount or sell the house and get the proceeds from the remaining equity. In any case, the heirs can assume 100% ownership of the property by paying off the loan.

There is no difference between a Reverse Mortgage and a Home Equity Loan

While there are a lot of similarities between the two, a reverse mortgage differs from a home equity loan in terms of payment. A home equity loan requires the borrower to make monthly payments whereas in the case of reverse mortgage there is no need for any regular payments.

The terms of the loan can be changed at anytime

All the terms are decided on the time of closing and remain the same throughout the life of the loan.

There are many lenders that offer homeowners reverse mortgage. It is therefore suggested to shop around and look for the lender that offers the best financial product.

(720) 524-3215

About the Author

Brian Quigley
Brian Quigley
 NMLS# #244003

Brian Quigley has been in the Denver mortgage industry since 2003. Customer satisfaction has been his top priority while guiding clients through the home loan qualification process. He is proficient in all types of mortgage financing including FHA/VA, Conventional, USDA, Jumbo, Portfolio, 1031 Exchanges, Reverse Mortgages, Refinancing, Construction loans, and FHA 203K loans.

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