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What happens at a reverse mortgage closing?

If you’re considering a reverse mortgage loan, you should try to become as educated on the process as possible. This includes doing your homework on the closing procedure and knowing what to expect at signing. In this article, we will review the typical reverse mortgage closing and point out key facts to help you have a better understanding of the process.

After your application is reviewed and you are approved for a reverse mortgage loan, the first step in the closing procedure is usually setting up a time to meet with your lender and the title agent (or attorney, depending on the laws in your state). Your lender will review and confirm the details of your reverse mortgage payments plan(lump sum, monthly payments, line of credit or combination) as well as other specifics. If everything is correct, you will begin signing all the necessary documents.

Key Fact: Starting on January 13, 2014, reverse mortgage lenders will begin conducting financial assessments of prospective reverse mortgage borrowers during the application process. This is to make sure borrowers have the financial capabilities to continue paying property taxes, homeowners insurance and other expenses associated with homeownership. While this may make the program seem more restrictive, it is a measure being taken to protect consumers from entering into a loan situation they cannot afford.

It is very important that you are fully aware of the obligations and entitlements that are laid out in your reverse loan’s paperwork. After all, this is your home – and likely your largest asset – so you do not want to put it under unnecessary risk by entering into a legally binding contract that you don’t understand.

Before closing, you will have had to receive reverse mortgage counseling from a HUD-approved mortgage counselor. This is a requirement of all reverse mortgage borrowers. While this counseling will help you better understand how a reverse mortgage works and how it will work for your situation, it may not cover every aspect of the closing procedure or translate the “legalese” that will be in your closing documents. This is why you should carefully read every document you are signing and make sure you understand every word. If you see something in the documents that you’re unsure about, do not hesitate to ask for explanation. If there are errors, be sure to ask your lender or attorney to rectify the problem(s).

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Key Fact: A reverse mortgage can be the only lien on a property. This means that if you have an existing mortgage, or any other financial debts associated with the property, you’ll need to pay those off first. You are typically allowed to use your reverse mortgage proceeds to pay off any existing liens, but keep in mind that this can reduce the amount of money you receive from the reverse loan.

Key Fact: As of September 30, 2013, reverse mortgage borrowers are limited on the amount of money they can take out within the first year of their reverse mortgage loan. For example, if you are eligible to receive $100,000 in a lump sum payment, you will only be able to take out $60,000, or 60 percent, in the first year. If you are planning on using the money to pay off an existing mortgage, you may be able to withdraw more. According to the National Reverse Mortgage Lenders Association, borrowers can withdraw enough money to cover any existing mortgage or other liens on the property plus an extra 10 percent of the maximum allowable limit.

In addition to verifying the specifics of your reverse mortgage loan terms and making sure all existing liens are paid off, your closing agent will also verify that you have obtained a current homeowner’s insurance policy and that all necessary taxes are paid.

To learn more about closing on a reverse mortgage loan, talk to an experienced reverse mortgage specialist serving your area. If you live in North Carolina, South Carolina, or Virginia call Alpha Mortgage’s Reverse Division at (855) 367-4326 for more information and a free consultation.

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Please keep in mind that the reverse mortgage industry is constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.