The quick answer is “no”, it’s a completely different type of mortgage than a traditional one which just about everyone is familiar with if you have ever purchased a home or done a refinance.
They are not Underwritten using “debt to income” ratios, FICO scores or “Loan-to-Value” calculations but use the potential borrowers’ net cash flow after all housing expenses have been deducted along with any credit card debt, installment loans and utilities.
Included in this overview is a 24 month history of property taxes, Homeowners Insurance and any HOA fees to verify that they have been paid on time.
A credit report is done to determine if there have been any late payments on credit cards or installment loans for the previous 24 months.
If there have been some late payments during that period of time, the Lender will request a letter of explanation and may require part of the funds from the reverse loan to be set aside in an escrow account to pay ongoing housing expenses.
I’m frequently asked how long it will take for a loan to be completed and that depends upon the cooperation of the borrower when they are asked to provide all the documents that are needed at the point of the application.
And due to the fact, that more paperwork is required from the borrower, it typically takes about 45 days to complete the loan and order loan documents to be signed by the borrower.
What should a person be looking for in a Reverse loan?
They can’t be compared to traditional financing because they are so different and the loan amount is calculated on the age of the youngest borrower and also depends upon if there is an existing mortgage to be paid off and the value of the property.
- There are no “Points” but an Origination fee is sometimes charged and that is determined by the loan amount and interest rate.
- No lender “junk” fees can be charged and regardless of who the company is that is offering the FHA HECM program, everyone has the exact same interest rates and costs.
- All the fees are regulated by the federal government.
- This is a mortgage offered by FHA and is insured by the federal government.
Choosing the company to represent you comes down to whether or not they will personally meet with you in your home or they expect you to complete a loan application and send in all of your documentation without assisting you in what can be a confusing experience.
Ultimately, a Reverse loan is still a mortgage and is recorded against the subject property as a lien, but there are no mortgage payments and the comparison to traditional financing ends there.