When I mention a "reverse mortgage" to some of my clients, some think I am trying to steal their house, some think I am trying to steal their money, and others think I am trying to take their children's heritage away. At some point in my life I sort of felt that way also, but then it happened: I learned about reverse mortgages and studied what was going on in the real estate market. Amazing what a little knowledge can do for your long term beliefs!
First and foremost it is called a reverse MORTGAGE, because it is just a loan, similar in many ways to the 30 year fixed loan. We start the process with a loan application, longer but less intrusive than a normal loan application (1003). We take the information needed to qualify: Generally a driver’s license to prove your age (62 or over) and a Medicare card to prove your social security number. That is all the qualifications you need as a borrower.
The last qualification comes after you speak with a counselor for about an hour over the phone or in person. Then we get an FHA case number and we order the appraisal of your owner occupied house, condominium or units 2-4 where you live. When we get the appraisal back showing your equity, we can determine if you qualify for a loan that will pay off your current mortgage and perhaps give you "cash out" of your property as well. The formula is a ratio of your age and your equity. If the reverse mortgage isn't enough to pay-off your current mortgage you will have to put up the difference in escrow to get the reverse mortgage.
Once you have all the facts you can choose the type of reverse mortgage you desire: fixed or variable. Once the decision on the type of loan is done we collect the insurance declaration page on your property and draw the docs to be signed. After signing you have a 3 day right of recession as you have on a regular mortgage loan. The loan is funded and recorded and your check, if you quality for one, is sent out to you. It generally takes 30 days from start to finish.
Your new loan requires you to maintain the insurance coverage and pay the property taxes and homeowners association dues, if applicable. In return you never make another mortgage payment the rest of your life, and your spouse's life, until you and your spouse both pass away or leave the property.
Now the good part:
1. Being a reverse is just a loan, you can refinance it with another reverse or a regular mortgage loan.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.