A reverse mortgage is a home loan, so the reverse mortgage process is very similar to that of a regular “forward” mortgage. We’ll cover the 6 simple steps and what to expect when applying for a reverse mortgage.
Reverse Mortgage Process
Step 1: Prequalification
The first step in the reverse mortgage process is to find a lender and get prequalified. If you don’t know who to work with, ask for referrals from friends, colleagues, neighbors, or relatives.
The reverse mortgage has increased in popularity in recent years, so there’s a good chance you know somebody who has one. A trusted real estate agent, financial adviser, or accountant may also be a good referral source.
You can also search the HUD website for lenders licensed in your state:
Keep in mind that the vast majority of lenders that do reverse mortgages only do them occasionally. The HECM has unique guidelines and requirements, so I recommend working with a lender that has a lot of experience.
You can determine how many reverse mortgages a lender does by searching for them on the most recent HUD endorsement reports:
If you’re working with a lender who has few endorsements (or doesn’t appear at all), you may want to work with a more experienced lender. I’m not saying they can’t get your reverse mortgage done, but their inexperience may cause hassles and lengthen the time it takes to process your application.
If you’d like to research a lender’s reputation, you can search for them on the Better Business Bureau (BBB) website:
The BBB is a good resource, but I recommend taking the negative reviews with a grain of salt. If a lender has a few complaints here and there, it doesn’t automatically mean they’re a bad lender. It’s impossible to please everybody, especially if the lender does a large volume of business.
Once you’ve found a lender, call them and get prequalified. The licensed representative you’ll be working with is called a reverse mortgage professional, originator, or loan officer. The term originator will be used here.
Depending on lender procedures, you may work with your originator over the phone or meet them in person in your home.
In the initial consultation, expect your originator to ask questions about your income, expenses, credit, and financial goals. You’ll likely need to give permission to run a credit report. A good originator asks questions to understand your financial goals, help you achieve them, and make sure you are likely to qualify. Once your originator completes the initial consultation, he or she can put together a proposal.
When presenting the proposal, your originator should be able to clearly present and explain interest rates, closing costs, and proceeds. Proceeds are calculated based on the estimated market value (not tax value) of your home, so make sure the originator is assuming a realistic home value.
If you’re satisfied with the proposal, you can move on to the next step, which is counseling.
Step 2: Counseling
The next step in the reverse mortgage application process is counseling, which is conducted by a HUD-licensed reverse mortgage counselor. The purpose of counseling is to help ensure that you understand how a reverse mortgage works and are reasonably competent to make financial decisions.
The counseling usually costs around $125 to $175 and is typically paid out of pocket with a debit or credit card. If you’re tight on cash, your lender may be willing to pay the counseling fee with proceeds at closing or the counseling agency may waive the counseling fee.
Your lender can provide a list of counselors, but they’re not allowed to recommend or nudge you towards a particular agency.
You can also search for counselors on the HUD website:
The counseling session is typically conducted over the phone, but some states require in-person counseling. Most counseling sessions last about an hour, but it could be longer or shorter depending on the counselor’s procedures and how much you already know about the reverse mortgage.
Once you’ve successfully completed counseling, you’ll be issued a counseling certificate that is valid for 180 days. Your lender will need a copy of the certificate to continue processing your application. You can either fax or email it to your lender or ask the counselor to send it on your behalf.
Step 3: Application
Once you’ve completed counseling, the next step in the reverse mortgage process is to complete and sign your application.
Some lenders may send the application by mail for you to complete, sign, and return. Other lenders may send your originator or a notary to meet with you in person to complete and sign the application. You may also be able to sign your application electronically. Your originator will let you know what to expect.
Your lender will also need some important qualifying documents. Your originator will let you know exactly what is needed, but it will likely include at least some of the following:
- Proof of income (W2s, paystubs, 1099s, award letters for Social Security and pensions, etc.)
- Statements for existing mortgages (if applicable)
- Homeowners insurance declarations page (usually the first page of the policy)
- Homeowner’s association (HOA) contact information (if applicable)
- Power of attorney (if applicable)
- Identification (driver’s license, state ID, passport, etc.)
- Proof of Social Security Number (1099, Social Security card, or some other official verification of your SSN)
Once your lender receives your signed application and qualifying documents, they’ll order your FHA case number, which is a unique 10-digit number assigned to every HECM loan file. Your lender must have the case number before they can move on to the next step, which is appraisal.
Step 4: Appraisal
The appraisal is an important part of the reverse mortgage process because it documents the value and condition of your home. The value of your home is important because it is used to calculate proceeds. Condition is important because HUD wants to make sure your home is safe, secure, and marketable. A home in marketable condition is less of a risk to the FHA insurance fund than a home in poor condition.
The appraisal is completed according to FHA requirements by a licensed real estate appraiser. Eligible property types include:
- Single-family homes
- 2-4 unit residential properties
- Condos in FHA-approved complexes
- Manufactured homes built after June 15, 1976 that are on a permanent foundation and haven’t been installed or occupied at any other location.
FHA appraisals tend to be more detailed than conventional “forward” mortgage appraisals. It’s possible for minor issues like peeling paint, dings in walls, or minor wood rot to be noted in the completed report. Don’t worry, a few minor repair issues won’t disqualify you. You can complete minor repairs concurrently with the processing of your loan application.
The lender may also allow you to complete minor repairs after closing with a repair set-aside. Here’s how the repair set-aside works: the lender carves out a small portion of the proceeds and sets it aside until you complete the repairs. Once your lender confirms the repairs are complete, they’ll release the funds in the set-aside back to you.
Lenders typically allow six to eight months to complete the repairs, but it’s in your best interest to complete them as soon as possible. If the repairs aren’t done by twelve months, HUD authorizes your lender to freeze the available funds in your reverse mortgage until the repairs are complete.
Lender procedures vary, but you’ll likely need to pay for at least some of the cost of the appraisal out of pocket. Appraisals typically cost around $600, but they can be more for large and/or unique properties. If you’re tight on cash, your lender may be willing to cover most or all of the appraisal charge with the proceeds of the loan.
The appraiser will contact you to set up an appointment a few days after your lender submits the appraisal order.
Expect the appraisal inspection to take about 30 minutes to an hour, depending on the size of your home. Your lender will receive the completed report within 7 to 10 days of the inspection.
Step 5: Conditional approval
The underwriter will issue a conditional approval once they’ve analyzed your application and determined that it meets the HECM underwriting requirements. This doesn’t mean your loan is complete, however. The approval will likely have at least a few conditions that need to be met before your loan can close. Such conditions could include additional signed disclosures, updated qualifying documents, mortgage payoffs, repairs, etc.
If the appraiser noted major health, safety, marketability, or structural issues with your home, such as a leaky roof, bad foundation, mold, water in the basement, etc., it’s likely that the underwriter will require the problems to be fixed before your loan can close.
Minor repairs like peeling paint or minor wood rot can often be completed after closing with a repair set-aside.
If you’re working with a large lender, a processor will typically step into the picture once the underwriter issues the conditional approval. The processor’s job is to help complete the outstanding conditions requested by the underwriter.
If you’re working with a small lender or broker, the originator may handle the processing. Regardless, your processor and/or originator may need to involve you to complete some of the approval conditions.
The time frame from conditional approval to closing could be either days or weeks. Clean files with minimal approval conditions often close just days after approval. Complex files with numerous outstanding conditions usually take longer.
Step 6: Closing
The underwriter will issue a final approval and clear your loan for closing once all of the approval conditions are received. Your originator will contact you to go over the final figures and schedule a closing appointment.
Non-purchase transactions come with a three-day rescission or “cooling off” period after closing in which you can rescind the transaction with no questions asked. There is no rescission period for purchase transactions.
Once the three-day rescission period is complete (if applicable), the lender releases funds to escrow. Escrow pays off existing mortgage balances and sends you any cash you requested at closing.
Frequently Asked Questions
What are the steps of a reverse mortgage?
The reverse mortgage process typically involves six steps: 1) Prequalification, 2) Counseling, 3) Application, 4) Appraisal, 5) Approval, and 6) Closing. The total process usually takes around 60 days, but it can go faster for well-qualified applicants. We cover each step in more detail on this webpage.
How long does the reverse mortgage process take?
There is a little more to a reverse mortgage than a regular “forward” mortgage, so expect the process to take a longer than it does for a regular mortgage. The total reverse mortgage process usually takes around 60 days, but it can go faster for well-qualified applicants.
Can you cancel the loan process for a reverse mortgage?
Yes, you can cancel the reverse mortgage loan process at any time before your loan is funded. Keep in mind that any counseling and appraisal fees that you’ve already paid are typically not refundable.
How long does it take to get approved for a reverse mortgage?
There is a little more to a reverse mortgage than a regular “forward” mortgage, so expect the process to take a longer than it does for a regular mortgage. The total reverse mortgage process usually takes around 60 days, but it can go faster for well-qualified applicants.
