How to get a reverse mortgage
A reverse mortgage works much like a traditional mortgage loan, only instead of you paying the lender, the lender pays you — out of your home equity.
Reverse mortgages are only available to senior homeowners, and they can be smart for those who want to supplement their Social Security payments or just want to avoid expensive monthly housing payments at a time when income is limited. If you think a reverse mortgage sounds beneficial for you then start exploring your options here now.
How to get a reverse mortgage
Are you considering a reverse mortgage for your needs in retirement? Here's how to go about getting one.
Determine what you'll use it for
Before you can get a reverse mortgage, you first need to determine what you'll be using the loan for. Will it be for recurring household expenses? To pay off a single, lump-sum debt? Maybe a hybrid of both?
Once you know your purpose, you can determine what type of reverse mortgage you'll need. You can usually choose between reverse mortgages that offer:
- A credit line that you can withdraw money from as needed
- Consistent monthly payments — either for a fixed period of time or as long as you're in the home
- A combination of both, with regular monthly payments as well as a credit line to pull from
You should also determine the total amount you'll need, as this impacts what type of loan you choose, too. Home Equity Conversion Mortgages (HECMs) — the government-backed reverse mortgage option — come with limits of $1,089,300. If you hope to borrow more than that, you'll need to consider a private reverse mortgage program.
Shop around for lenders
Not all lenders offer the same rates, terms, or fees, so if you want the best deal on your reverse mortgage, it's important to compare at least a few options.
When determining who you'll work with, be sure to consider reputation, too. Check online reviews, and always verify a lender's legitimacy with the Better Business Bureau. Start shopping reverse mortgage lenders here now.
Apply for your reverse mortgage loan
Applying for your loan is next. For this step, you'll need to fill out your lender's reverse mortgage application, agree to a credit check and provide some documentation.
This usually includes:
- Tax returns
- Bank and retirement account statements
- Paystubs
- A copy of your property title/dead
- A copy of your home insurance policy
- Your current mortgage statement, if any
If you're getting a HECM, you will also need to provide proof that you've completed HECM counseling from an approved agency. The Department of Housing and Urban Development (HUD) requires this of all HECM borrowers.
Appraisal
Once you've applied, your reverse mortgage lender will order an appraisal of your house. This is when a third-party professional determines the market value of your home, which is then used to calculate how much you can borrow. Usually, you can borrow at least 40% of your home's total value, though it depends on your lender and whether you have any additional loans against the property.
Underwriting
During the underwriting phase, your lender goes through your finances and makes sure you meet all the requirements of the loan and that you have submitted all the appropriate documentation. In some cases, they may ask you to submit additional or updated documents before you can proceed to close.
Closing
Once you close on your loan, you'll pay your closing costs and your reverse mortgage funds will be released. You can then begin using the money however you wish.
Just remember: Reverse mortgages may not have monthly payments, but they do require you to stay current on your home insurance and property taxes. If you don't, your lender could foreclose on the property.
Learn more about your reverse mortgage options online now.
