The application process for both a traditional mortgage and a reverse mortgage is similar but how long it takes to get a reverse mortgage depends on several factors. Understanding the reverse mortgage process will also give you an idea of how long to expect it to take.
Most homeowners apply for the reverse mortgage type known as a home equity conversion mortgage (HECM), available through a Federal Housing Administration (FHA)-approved lender. While every application is unique, the following is a broad overview of the process to get and close a reverse mortgage.
Selecting a Lender
While technically not part of the application timeline, you do want to explore mortgage lender options early enough that you don’t feel rushed into making a decision. Look for a lender who will provide you with education and answers before the application.
If you’re applying for the FHA-insured HECM, you’ll focus on FHA-approved lenders. Whether you apply for a HECM or a proprietary (lender-branded) reverse mortgage, take the time to research reputations and compare interest rates and fees since they can differ.
As with any loan, you’ll fill out an application and provide required documentation, including proof of income and homeowner’s insurance. In addition to doing a credit check and establishing that you can continue to afford your home’s insurance, property taxes, and upkeep, the lender will make sure you don’t have federal debt. It will also do a title search, which can move forward quickly or identify liens on the property to clear before closing.
Your home’s appraised value, age of the youngest borrower, and interest rate determines how much you can borrow.
The appraisal timeline is one item completely out of control of the lender. In many cases, an appraisal can be completed in a couple of weeks, but depending on your region it could up to two months or more.
Along with determining the home’s value, the appraiser could identify issues that require repairs. Any heath, safety, or property preservation issues will need to be addressed prior to closing. If other repairs are required, they may be able to be completed post-closing by establishing a repair rider.
When your loan is approved, the closing process is very similar to a traditional mortgage, depending on state law, either with a title company or closing attorney.
To make sure borrowers understand how a reverse mortgage works, the FHA requires prospective borrowers to meet with a counselor from an independent, HUD-approved housing counseling agency. Some lenders require this for non-HECM loans, as well. Your lender will provide a list of HUD-approved counseling agencies and depending on current demand in this could add to your timeline.
Accessing Reverse Mortgage Funds
Reverse mortgages are closed with a three-day right of rescission. Loan proceeds are wired from the mortgage lender to the title company or closing attorney who will disperse funds to the consumer on the fourth business day, in accordance with the HUD-1 closing statement.
Information on accessing funds after closing, whether setting up monthly payments or establishing a reverse mortgage line of credit, are all outlined within the payment plan at closing.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.