How To Apply For A Reverse Mortgage

Once you reach retirement age, you can access several financial tools, like a reverse mortgage. This loan type can help you pay for things like home modifications, medical expenses, or even delay taking Social Security.

Image has an image representing a reverse mortgage application.

In response to higher living costs, over 20,000 people have opened new reverse mortgage loans in the past year. If you want to learn more about the reverse mortgage application process, this article covers all the steps to apply.

What is a reverse mortgage?

A reverse mortgage is a loan that lets you pull from the equity in your home, but it doesn’t require monthly mortgage payments. You can apply for this loan type if you are 62 or older and are eligible whether you've paid off your home or still have an existing mortgage. Other reverse mortgage requirements include having enough equity and having your home as your primary residence.

You might also hear a reverse mortgage referred to as a Home Equity Conversion Mortgage (HECM). These loans fall under the governance of the Federal Housing Administration (FHA) within the U.S. Department of Housing and Urban Development (HUD).

You can repay a reverse mortgage at any time, but you must pay it off if you move out, sell it, or pass away. During the time you have the loan, you are responsible for paying property taxes, maintaining homeowners insurance, and keeping up with home maintenance.

Steps to apply for a reverse mortgage

You can apply for a HECM loan in seven easy steps:

Step 1: Speak with a mortgage lender

The first step to getting started is to speak with a reverse mortgage lender who can help you understand the process and potential funding amounts. Reverse mortgages aren't right for everyone, and the lender will ask a few questions to get an idea of your circumstances and needs. Types of questions they might ask include:

What’s the estimated value of your home?
Do you have an existing mortgage or any other liens on the home?
Are you planning to stay in your home long-term?
How does a reverse mortgage fit into your estate plans? Do you plan to leave the home to your heirs?

Step 2: Attend a counseling session

HUD requires everyone considering a reverse mortgage loan to have a counseling session with a HUD-approved counseling agency. This legally required step helps to make sure you understand all of the details of a reverse mortgage before making a financial commitment.

The counseling session is a type of financial advisor discussion. The meeting covers topics such as how a reverse mortgage works, your financial obligations, and alternative options to evaluate, like a home equity loan.

Your reverse mortgage lender can recommend an approved counseling agency, or you can find options on the HUD website.

Step 3: Submit your application

Once you've completed the counseling session and want to move forward with the reverse mortgage application process, the next step is to complete the application. The information your lender requires can include:

Identification: Since you can only get this loan type if you’re 62 and older, the lender needs to make sure you meet this requirement. You can use a driver's license or any other identification shows you meet the age threshold.
Property details: Lenders ask for details about your home and need to confirm it's your primary residence. Vacation homes do not qualify for home equity conversion mortgages, and you'll also need at least 50% equity in the home.
Income verification: Lenders require proof of income to show you can pay for the annual property taxes and homeowner's insurance. The types of documentation can include your Social Security benefits letter, any W-2 statements if you still work, and pension or bank statements.
Counseling certificate: After the counseling session, you'll receive a certificate to submit with your application.

Step 4: Lender home evaluation

For the home evaluation, the lender orders an appraisal, a title search, and a credit report to see if your property meets the requirements for a loan. If you are familiar with traditional mortgages, down payments and loan-to-value amounts, that approach isn’t necessary in reverse mortgages. However, the lender uses the appraisal to see how much equity you have available for the total loan.

You also don't need a certain credit score like you do with traditional mortgages, but the lender uses your credit report as part of their overall financial assessment. They'll check to see if you meet the residual income requirements and that you don't have any federal tax liens or debts.

Step 5: Application processing

Next, the lender reviews all the details about your home to decide if they’ll approve your application. The underwriting for this can be a manual process so it may take a few weeks to get an answer. Sometimes, the lender grants approval but has certain conditions. This could mean you might need to provide more documentation or make repairs to your home.

Step 6: Loan closing

If your application is approved, it's time to close on the loan. You have a few options here like scheduling with a mobile notary who brings the closing documents to you or signing the final documents at the title company.

Step 7: Receive funds

Just like a traditional mortgage gives you three days to cancel the loan, the same applies to a HECM. After this three-day waiting period, you'll receive your reverse mortgage funds.

Depending on your loan type, you may have options on how you want the loan proceeds, such as all at once, monthly payments, or as a home equity line of credit.

Your final proceeds depend on:

Your home's appraised value.
Any existing mortgage or other home loan that the reverse mortgage lender needs to pay off.
If you choose or your lender requires a Life Expectancy Set Aside Account (LESA). This account sets aside a portion of the loan to provide funding for homeowners insurance and property taxes.

Reverse mortgage borrowing potential

To get an idea of how much your loan proceeds could be, check out our reverse mortgage calculator:

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Key considerations

Here's a few other areas to consider around reverse mortgages:

Interest rates

The interest rate on a HECM loan depends on which option you choose. Just like a regular mortgage, you can have a fixed or variable-rate loan, but since you aren't making monthly payments, the interest accumulates and gets added to your loan balance.

When it's time to pay off the loan, the total payoff includes the principal and the accumulated interest.

Loan costs

You'll also have costs as part of the loan, like fees for the application process, credit report, appraisal, and title closing fees.

Government benefits

Reverse mortgages don't alter Social Security or Medicare benefits. However, if you have Supplemental Social Security income or Medicaid benefits, you may need to consider the impact. These programs generally don't consider a reverse mortgage loan as income, but if you don't spend the funds in the month, you receive them, this might affect your eligibility for ongoing program benefits.

Non-borrowing spouse

For married borrowers, you’ll want to make sure that your reverse mortgage loan lists your spouse as a co-borrower or eligible non-borrower to protect them in the event of your death. This status makes sure that they can remain in the home after your death.

Estate planning

Discuss your plans with your heirs so that they can become familiar with the reverse mortgage process and estate planning options. When the loan comes due, they can pay off the reverse mortgage or sell the home to cover the loan amount.

A HECM reverse mortgage is a non-recourse loan which usually means that lenders can’t come after other assets if you default on a loan. For reverse mortgages, it protects your heirs from owing more than the original loan amount when it's due.

Final thoughts

Reverse mortgages can be a flexible way to get financial help or be ready for the unexpected. If you meet the requirements, and you’re looking to stay in your home for several more years it might be just the financial lifeline you need.

Applying for a reverse mortgage: FAQs

What is the downside of a reverse mortgage?

There are many benefits to a reverse mortgage, but one key downside is that your home equity decreases over time as the loan amount grows. If this concerns you, consider setting aside funds to pay off the mortgage early.

What disqualifies you from getting a reverse mortgage?

You might not qualify for a reverse mortgage if you are under 62, if the home is not your primary residence, or if you are behind on government loan payments.

How long does it take to get a reverse mortgage approved?

It can take about 30-45 days for approval. This depends on the timing of your counseling certificate, any repairs you need to make or any additional documentation the lender needs.