Reverse mortgages are loans for older homeowners. It allows people who own homes to convert their home equity into cash. Ronald Reagan signed the Housing and Community Development Act into law. This established the right to do Home Equity Conversion Mortgages or HECMs.
HECM borrowers do not have to repay the HECM loan until they no longer use the home as their principal residence, or they fail to meet the obligations of the loan. You can also use a HECM to purchase a primary residence if you have cash on hand to pay the difference.
The requirements for a reverse mortgage are not overly strict. Essentially, borrowers must be at least 62 years of age. In 2014, the US government changed the rules regarding spouses. If one spouse is over the age of 62 and the other spouse has not yet reached that age, they are allowed to keep the loan without having to repay it all immediately when the borrower passes on.
Above, we mentioned the terms ‘principal residence’ and ‘primary residence’. These terms are exactly what they sound like. For your home to qualify, it must be the place you live in most of the time. Homes that you purchased as an investment or second homes do not qualify. This means that if you have a country cabin, or a beach house, it may not meet the requirements for a reverse mortgage.
Additionally, your home must be single family, multi-family up to 4, or an approved condo. If you own your home entirely or only have a small amount to pay on the mortgage, then you are eligible to get a reverse mortgage. Before receiving this loan, make sure that your home is also in good condition.
Finally, the bank will assess your finances. In order to qualify for this loan, the bank will verify if you can pay:
- Homeowner’s insurance
- Basic home maintenance
- Property taxes
- Homeowner’s Association fees, where applicable
The Application Process
Before applying for a reverse mortgage, it is wise to seek counseling. The Department of Housing and Urban Development requires that you take a small course on the matter. You must sign a Home Equity Conversion Mortgage Counseling Certificate. This counseling is available by phone, and you can meet someone face to face at a regional agency.
At this point, you are legally authorized to begin the application process. The lender cannot incur any costs for you until you have finished counseling. In this stage, you may still cancel at any point, as it is not binding.
Someone will come to your home to assess the current market value. The appraiser must be approved by the Federal Housing Administration, and the process must be in line with FHA guidelines.
You will need an underwriter, to make sure that everything is in good order. The underwriter will review all of the documentation and identify the criteria prior to finishing the process. They will also need to recognize additional or missing items. Once everyone has had a chance to review everything, the final closing date can be set.
When it’s time to close, you will need a notary or a lawyer. Such individuals sign the final documents. It is a good idea to check that the interest rates, fees, and proceeds did not change in any way. Legally, you have the right to change your mind for three business days. During this period, you can cancel the application without penalty. Once this time frame has passed, the company will then send you the funds.
The entire process takes between 30-45 days. It may take more or less time based on varying circumstances. You may find it useful to ask a lawyer or an expert concerning any issues that you have in the process.
Patrick Cordero can help you out today. He is an experienced, resourceful, and knowledgeable attorney. We have already helped many people in Miami. The next success story could be yours.