The Reverse Mortgage Process and Timeline

Does This Apply to Your Situation: The Basic HECM Requirements

Before reading about the steps, it helps to know whether the process applies at all. The basic conditions come from 12 U.S.C. § 1715z-20 and HUD's regulations.

• Age. The statute defines an "elderly homeowner" as one "who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe" (12 U.S.C. § 1715z-20(b)(1)). The regulation adds that "the youngest borrower shall be 62 years of age or older at the time of loan closing" (24 C.F.R. § 206.33). Reverse mortgage age requirements explain how this works with a younger spouse.
• Principal residence. The home must be the principal residence of each borrower, and of any Eligible Non-Borrowing Spouse, at closing (24 C.F.R. § 206.39(a)). The CFPB describes a principal residence as the place you live the majority of the year.
• Property. The dwelling must be designed principally as a 1- to 4-family residence, with the borrower living in one of the units (12 U.S.C. § 1715z-20(d)(3)). That is a partial description. HUD's lender guide adds that the property must meet FHA property standards and flood requirements.
• Existing mortgage. The CFPB says the home must be owned outright or carry a low balance. Any existing mortgage must be paid off at closing, using the borrower's own funds or reverse mortgage money.
• Federal debt. The borrower cannot owe federal debt, such as federal income taxes or federal student loans. Reverse mortgage money may be used to pay it off.

How much may be available is a separate question. HUD lists factors that include the age of the youngest borrower or eligible non-borrowing spouse. Another factor is the lesser of the appraised value, the HECM FHA mortgage limit or the sales price. Nothing here means a reader qualifies or will receive any amount. That is the lender's decision.

Step 1 — HUD-Approved Counseling

Counseling is the first formal step, and federal law requires it. A HECM borrower must have "received adequate counseling" from an independent third party (12 U.S.C. § 1715z-20(d)(2)(B)). Independent means the counselor is not associated with, or paid by, anyone who originates, services or funds the loan, or who sells annuities, investments, insurance or other financial products.

Under 12 U.S.C. § 1715z-20(f), the counselor must discuss topics including:

• options other than a HECM, such as other housing, social service, health and financial options
• other home equity conversion options, such as sale-leaseback financing, deferred payment loans and property tax deferral
• the financial implications of the loan
• a disclosure that the loan may have tax consequences, affect eligibility for federal and state programs, and affect the estate and heirs

Under HUD's rules, the borrower must attend. So must any Eligible or Ineligible Non-Borrowing Spouse and any non-borrowing owner. At first contact, the lender must give the borrower a list of approved counselors.

After the session, the counselor issues a certificate. The borrower gives the lender a physical copy of it. HUD's counseling certificate form shows an expiration date 180 days after counseling is completed.

To find a counselor, HUD points to its HECM Counselor Roster and the number (800) 569-4287. A counseling agency can say how its sessions are held, how long they run and whether it charges a fee. More on what the session covers is in HUD reverse mortgage counseling.

Step 2 — Application and Initial Disclosures

With the certificate in hand, the borrower applies to an FHA-approved lender. The lender gathers information about the borrower and the home, including income, assets, credit history and property details.

The statute also sets what the lender must hand over, and when, under 12 U.S.C. § 1715z-20(e):

• At application: a written list of approved third-party counseling sources.
• At least 10 days before closing: a statement explaining that the homeowner's liability is limited. It also explains the homeowner's rights and obligations around temporary absences, late payments, payment default by the lender, and every condition that makes the loan due.
• Before closing: a statement of the projected total cost of the loan, expressed as a single average annual interest rate. It must use at least two appreciation rates and at least two loan terms, including a short term and one equal to the borrower's life expectancy. This is sometimes called the total annual loan cost disclosure. In plain words, it shows what the loan may cost over time.
• Every year, by January 31: a statement of the money paid out, the interest added and the balance owed.

The borrower must also receive full disclosure of all costs. That disclosure must state which charges are required to get the loan and which are not (12 U.S.C. § 1715z-20(d)(2)(C)). How long this stage takes depends largely on how quickly the papers come together.

Step 3 — Home Appraisal

Next comes the appraisal: an independent estimate of what the home is worth. The appraisal matters for two reasons. HUD's lender guide states that the property must meet FHA property standards and flood requirements. The value also feeds the HUD calculation described above, because the lesser of the appraised value, the FHA limit or the sales price is one factor in what may be available.

The lender arranges the appraisal, and the lender's disclosures show who pays for it and how much. An appraiser looks at the home's market value and its condition. If the appraiser finds repairs the property needs to meet standards, the lender explains whether they must be finished before closing or may be handled afterward.

That figure helps set the principal limit, which is the most that can be borrowed under the loan. A family looking at an older house may find this the stage that most affects the schedule, because a repair needs a contractor and time.

Step 4 — Underwriting

Underwriting is the lender's careful review. The lender checks the application, the appraisal, the title and the borrower's finances against FHA rules and its own standards.

The review of finances looks ahead. Under 24 C.F.R. § 206.27(c)(2)(iii), the loan can become due if the borrower does not provide for property charges such as taxes and insurance. That is why the lender looks at credit history, income and past payment of those bills. The lender may ask questions or attach conditions. A lender can explain any arrangement it proposes for future property charges and how that arrangement would reduce the money available.

Underwriting tends to slow down for a few reasons:

• missing or outdated documents
• title questions, such as a name that does not match or an old lien
• repairs flagged by the appraisal
• questions about who owns the home

The stage ends when the lender issues an approval, a conditional approval or a denial. The lender makes that credit decision, and nobody else can promise its outcome.

Step 5 — Closing

At closing, the borrower signs the loan papers. These include the note, which is the promise to repay, and the mortgage or deed of trust, which ties the loan to the home. A closing agent or title company usually runs the signing.

The right to cancel comes next. The CFPB explains that with most reverse mortgages, the borrower can cancel for any reason, without penalty, within three business days after closing. This is called "rescission." Under the federal rescission rule, 12 C.F.R. § 1026.23, the window runs until midnight of the third business day after the last of three events: closing, delivery of the cancellation notice, or delivery of the key disclosures. The rule does not apply to a loan used to buy the home, so a HECM for Purchase carries no such right. If the creditor receives a cancellation notice, it must return any money paid in connection with the loan within 20 calendar days. One exception applies: the right does not cover a "residential mortgage transaction," the term the rule uses for a loan to buy a home. Funds are generally released once the window closes.

The borrower chooses how the lender may pay out the money under the loan's terms. The options are listed in 12 U.S.C. § 1715z-20(d)(9):

• a line of credit
• monthly payments for a set term
• term payments combined with a line of credit
• monthly payments for as long as the borrower lives in the home (called "tenure")
• tenure payments combined with a line of credit
• any other basis the Secretary considers appropriate

The borrower may generally switch methods later. For fixed-rate loans, HUD may limit that switching (12 U.S.C. § 1715z-20(d)(10)). Any closing cost paid from loan funds becomes part of the balance that grows over time.

How Long Will This Take for Your Family

Families often ask for a date, and an honest answer depends on the facts of the home and the file. No federal rule supplied here sets a total timeline. The lender can describe its own expected schedule, but that is an estimate and not a promise.

A few fixed points do shape the calendar. The pre-closing statement must arrive at least 10 days before closing. The counseling certificate shows an expiration 180 days after counseling, so a long delay may mean counseling has to be done again. The cancellation window adds a few business days after signing.

These parts commonly stretch the schedule:

• booking the counseling session
• finding an appraisal date
• completing required repairs
• clearing title problems
• gathering documents for underwriting

The borrower's own pace matters too. Answering requests quickly and keeping papers in one folder tends to keep a file moving. A family member helping a parent can often play a useful role here.

Costs Associated with a Reverse Mortgage

Cost is where advertising is often vague, so each category is named plainly here:

• Origination fee. This is the lender's charge for making the loan. Federal rules limit it, it may be fully financed into the loan (12 U.S.C. § 1715z-20(r)(3)), and the lender discloses the actual amount.
• FHA mortgage insurance premium. This is the charge for federal insurance. Among other things, the statute directs HUD to provide borrowers with funds they are owed but have not received because the party responsible for paying them defaulted (12 U.S.C. § 1715z-20(i)(1)(A)). HUD publishes the current premium rates.
• Appraisal fee. This pays for the valuation described in Step 3.
• Closing costs. These include title, escrow and recording charges.
• Servicing fees. These are charges for managing the loan after closing, if the loan has them.

The FTC puts the larger point directly: "Your debt keeps going up (and your equity keeps going down) because interest is added to your balance every month." Costs paid from loan funds start that balance higher. The FTC also notes that no one has to buy annuities, insurance or other products to get a reverse mortgage. Comparing a reverse mortgage with a reverse mortgage vs home equity loan view can help put these costs in context.

When the Loan Comes Due: What Your Family Needs to Know

Repayment is the step families often worry about most, especially for a parent who may one day need care. Under 24 C.F.R. § 206.27(c), the balance generally comes due when a borrower dies and the home is not the principal residence of a surviving borrower. It also comes due when every borrower has given up title. Either way, that is subject to a Deferral Period for an Eligible Non-Borrowing Spouse who meets HUD's requirements.

With HUD approval, the loan may also come due for any of these reasons:

• the home stops being any borrower's principal residence for reasons other than death
• a borrower is away for more than 12 consecutive months because of physical or mental illness, and no other borrower lives there
• property charges are not paid
• another loan obligation, such as upkeep, is not met

Repayment typically comes from selling the home or from other funds. The statute generally limits the debt. The homeowner is not liable for any shortfall between the balance and what is recovered from the net sale proceeds or the FHA insurance (12 U.S.C. § 1715z-20(d)(7)). The FTC describes this as a "non-recourse" clause. In plain words, the estate can't owe more than the home's value when the loan comes due and the home is sold. An attorney can explain how this applies to a particular estate.