What these loans do is allow seniors to borrow a portion of their equity, which they repay once they sell their home, stop living in the residence or pass away.
To get a loan, lenders require that borrowers are at least 62 years of age and own their home outright or have a small remaining mortgage balance.
Essentially, these loans are designed to provide seniors with a way to eliminate their mortgage payments and add to their retirement income.
What Is a Reverse Mortgage? Understanding the Options Available to Seniors For those wondering what is a reverse mortgage, these loans are not a one-size-fits-all type of loan.
Reverse mortgages fall into three main categories: propriety loans, single-purpose loans and Home Equity Conversion Mortgages (HECMs).
Propriety loans make up a small percentage of all reverse loans and are typically pursued by seniors who own very high-value homes.
Single-purpose loans are those, usually given by nonprofit organizations and state agencies, that must be used for a specific purpose.
HECMs are insured by the Federal Housing Administration (FHA) and make up over 90% of all reverse mortgages.
FHA currently insures three types of HECMs: the HECM Standard, HECM Saver and HECM for Purchase.
The HECM for Purchase program gives seniors the option of purchasing a new principal residence with the proceeds of an HECM, while the Standard and the Saver allow seniors to get an HECM on their existing home.
The variety of available loan products makes it possible for seniors to choose a loan that truly meets their needs.
What Is a Reverse Mortgage? Understanding the Loan Process In addition to understanding their different options, seniors wondering what is a reverse mortgage might also be interested in learning more about the loan process.
To get a loan, borrowers will complete three major steps: counseling, application and closing.
After contacting a lender, seniors will be required to attend one counseling session with a HUD-approved housing counselor.
During counseling, seniors will discuss their different options and determine whether the loan is right for them.
Counselors will do their best to answer what is a reverse mortgage and provide seniors with the information they need to make an informed decision.
Upon completing counseling, seniors will be presented with a counseling certificate, which enables them to apply for a loan.
During the application process, seniors will be expected to complete an application and have their home appraised.
Once the home is appraised, the lender will determine how much money the borrower is eligible to receive.
After the application has been submitted, the underwriting department will determine whether to deny or approve the borrower's request for a loan.
Once the loan has been approved, borrowers then schedule their closing.
On the day of closing, the final paperwork will be signed and sent back to the lender.
After three business days, the loan will fund and, the lender will distribute the necessary payment.
For those wondering what is a reverse mortgage, this is essentially how these loans work.