Reverse Mortgages can help those who need additional money but before proceeding with the reverse mortgage process, there are some facts you need to know.
What Is a Reverse Mortgage?
A reverse mortgage is a particular kind of home loan that allows you to convert a portion of the equity you have in your home, into cash. It is the equity that builds up over the years in mortgage payments that can be paid to you. However, this is not like a traditional home equity loan because no repayment is required until the borrower—which is you—no longer considers their home as their main residence.
In addition, you can also use a reverse mortgage to purchase a primary residence, but only if you are able to pay with difference with cash between the HECM proceeds and the sales price. Also, the closing costs must also be paid.
Steps to Take
Once you have decided that a reverse mortgage is something you want to do, there are certain steps you must take to make this happen:
? Go Through Certain Counseling Steps: Those who go through counseling must have third party counseling from the Department of Housing and Urban Development-approved counseling agency. Counseling can be given in-person, or over the phone.
? Apply for a Reverse Mortgage and disclosure. Documentation that is needed during the application process are: Social Security number, deed to the property, counseling certificate, and information on any existing mortgages or liens.
? Processing and a certified appraisal. While this process goes on, the lender will have a certified appraisal performed in order to determine the value of the property.
? Underwriting: Finalizing the details of the loan, which includes the payment plan and interest rate adjustments are conducted. Then, the lender presents the finalized loan package in order to get final approval.
? Closing. This is the signing of the documents and scheduled when approval of the loan package is complete.
? Payment The homeowner has three days to decide to cancel the loan. Once the three day period has ended, the loan payment is paid according to what payment plan the borrower selected. Once all of the existing liens are repaid, the borrower can use the funds from the reverse mortgage any way he or she chooses to do so.
? Repayment/Disbursement All loan payments are put off as long as the property remains the borrower’s primary residence.
Note: the reverse equity mortgage is repaid using the proceeds from the sale of your home. In addition, the borrower or the borrower’s heirs may also repay the loan and can do this by refinancing the property with a traditional mortgage. However, the amount of the loan must not exceed the home’s sale price.
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