Your Reverse Mortgage Questions Answered
How does the reverse mortgage process work?
Do your research. Read up on the process as much as you can. When selecting a loan officer, you should consider working with a professional who has earned the Certified Reverse Mortgage Professional (CRMP) designation, the highest designation in the industry, from the National Reverse Mortgage Lenders Association (NRMLA). A CRMP is a mortgage professional who has made a long-term commitment to use his or her experience and knowledge to serve older homeowners. Equipped with up-to-date education and a high level of connectivity with other top reverse industry professionals, a CRMP is ready to provide you with quality information and options that are appropriate for your goals and your current situation.
NRMLA commits to the highest ethical standards and the placement of the client’s need above any personal gain, recognition or achievement. You can expect the following form a CRMP:
- Commitment to ongoing education
- Customer Service
Federal regulation and state law often request that reverse mortgage borrowers receive state-certified housing counseling. And while this counseling is mandatory for HECM and Home Keeper reverse mortgage borrowers, the service had available free grants if you qualify. Counseling appointments typically take about an hour and may be handled in-person or over the telephone.
Your lending agent will require you to complete a loan application and determine how to receive payment and give you options of different products to choose from. The options range from fixed, 1-month Arm, 1-Year Arm, monthly income for fixed term or tenure, line of credit, lump sum, or any combination.
Your lending agent will order credit report, title report, appraisal, lien payoffs and correspond with the underwriters to get any additional information to process the file.
Once your lender has received and completed the required documentation, your loan package will be submitted to underwriting department to confirm the loan, for final approval.
After your reverse mortgage loan had been approved and signed, the loan’s initial interest rate will be determined. Closing costs are typically financed by the loan and a time is set for the final documents to be signed.
Once you have officially closed on the loan and signed all the documents, you have 3 business days to change your mind and cancel the loan. After the 3-day period, the funds are disbursed, including any amount that will be applied to a previous lien on the property. Then you will begin receiving payments according to the payment option you selected.
You will not be required to make monthly payments during the term of your loan. The reverse mortgage becomes due and payable in full once 1) the home is no longer being used as a primary residence, 2) It is sold, or 3) the borrower and any spouse passes away. Upon the death of borrower(s), the loan may be repaid from the sale of the home or by refinancing the existing reverse mortgage. All remaining equity belongs to the heirs/estate.
What can I expect to learn from my housing counseling appointment?
Accredited housing counselors work with seniors to help them evaluate the viability of a reverse mortgage loan by looking at the borrowers:
- Current budget
- Monthly income
- Loan risks
- Loan benefits
- Interest rates
- Associated fees
HUD -approved HECM housing counselors are required to use loan comparison and analysis software that meets the requirement established by the AARP. Certified counselors must also adhere to the AARP Foundation Reverse Mortgage Education Project counseling policies and procedures. Because it is their job to help insure that you are making a responsible financial decision, they may also review financial options with you.
The AARP Foundation Reverse Mortgage Education Project regulates a nation network of HUD-approved HECM housing counseling agencies by administering the exam that certifies counselors for HUD-approved HECM housing counseling agencies. HUD’s National HECM Counseling Network consists of the exam’s highest scoring counselors. That means that you can be sure that they are charged with looking out for your best interest.
What can I expect to be included in closing costs?
Most of the standard closing costs associated with your Reverse Mortgage can be included in the financing so you do not have to pay them out of pocket. These costs include:
- Mortgage Insurance Premiums: This is the insurance that the FHA uses to make the payment guarantees and non-recourse aspects of your reverse mortgage loan. The premium of the HECM is based on if there are any mandatory obligations against the home and of what percent of the benefit. The Insurance fee is currently 2% of the appraised value of your home (not to exceed $679,650) and is paid directly to the FHA insurance fund. These fees are built into the numbers as part of your reverse mortgage loan.
- Third Party Charges: You will have very similar costs to that of a normal conventional refinance including appraisal, title search and title insurance, recording fees, mortgage taxes, credit check and other fees. The majority of these can be paid from the loan proceeds and built into the numbers as part of the reverse mortgage loan.
- Origination Fee: Based on the FHA & HUD guidelines. This fee is capped at a minimum of $2,500 up to $125,000 value, or 2% of the first $200,000, and 1% of the amount over $200,000. However, if certain criteria is met, we are sometimes able to be more flexible and reduce the origination fee a bit.
- Servicing Fee: This fee is for the maintenance of your account: account statement disbursing loan proceeds and customer service and is typically $30/month. Currently some products come with no servicing fees. This is not a fee that you must pay out of pocket. A reserve is set aside at closing for payment of this fee. Any unused portion is reimbursed to the reverse mortgage borrower when the loan is paid in full. At the current time, the products that we offer do not come with any monthly service fees or need to set up any form of additional set aside.
- Rates: Rates vary between products and programs that can be chosen. When we prepare proposals, we will show a variety of different products with a selection of rates to choose from.
Finally, if you are on the fence – consider this. If there were a bank where the following was true, would you invest?
- You could invest and make subsequent withdrawals, but the account would still appreciate based on the original investment.
- Withdrawals are free from any penalties.
- Withdrawals are not subject to taxes in any way.
- The account is insured to not only guarantee all payments but also protect you and your heirs from any future liability resulting from withdrawing more than your balance.
Payment Plans Available on a Reverse Mortgage
Tenure – equal monthly payments for as long as at least one borrower is living in the home as their primary residence. You can learn how much you can get in a free consultation with one of our reverse mortgage specialists.
Term – Equal monthly payment for a specified period.
Line of Credit – An available amount that can be drawn upon until the maximum amount had been reached. Any unused credit line will increase every year giving the borrower more available credit as there is a growth rate attached to the line.
Modified Tenure – A combination of line of credit and scheduled monthly payments for as long as you live in the home.
Modified Term – A combination of line of credit and fixed monthly payments for a scheduled period.
** The Payment Plan can be modified even after the loan is closed for a nominal fee. The amount you can receive either in a lump sum, line of credit or monthly payment is based upon the age of the youngest borrower, the current interest rate, and the appraised value of your home (not to exceed $679,650)
For more answers to common questions, please call one of our Certified Reverse Mortgage Professionals, Greg Newman and Michael Markoff, at 800-987-1225.