Closing
Once the loan application has been approved, a closing (signing) of the reverse mortgage is scheduled with a title agent or attorney (depending on the state). The lender should confirm the payment plan the borrower wishes to receive (i.e. amount of fixed monthly payments, line of credit), plus any requested cash the homeowner wishes to receive in a lump sum at funding. Closing documents and final figures are prepared. Closing costs are normally financed as part of the loan, but the homeowner is allowed to pay any costs in lieu of financing, if they so choose.
There is a limit on the amount of money that can be withdrawn in the first year. If you are eligible to withdraw $100,000, for example, you would be allowed to get only $60,000, or 60 percent of that sum, in the first year. There are exceptions. You can withdraw a bit more if you have an existing mortgage, or other liens on the property, that exceed the 60 percent limit. You must pay off these “mandatory obligations” as the government calls them, with your reverse mortgage. You can withdraw enough to pay off these obligations, plus another 10 percent of the maximum allowable amount — in which case that’s an extra $10,000, or 10 percent of $100,000.
A reverse mortgage must be the only lien on a property. This means, in order to obtain a reverse mortgage you must pay off any existing mortgage(s) or other obligations for which a lien has been placed on the property. You can use your reverse mortgage proceeds to pay off the mortgage or other obligations.
If existing liens are identified, the payoffs are updated accordingly. Your closing agent will pay off all existing liens, verify taxes are paid and make sure that you have a current homeowner’s insurance policy.
Before closing on a reverse mortgage, you may consider seeking the advice of a tax professional or elder law attorney in the event you are faced with a situation that can affect your taxes, Medicaid or SSI eligibility. Social Security and Medicare are not impacted at all by a reverse mortgage.
Under the best case scenario, it takes a few business days to confirm all fees and payoffs, schedule a closing date, prepare the documents and communicate to all parties involved. Closing agents who are NRMLA members will not pressure you to close by a certain time frame that you are unable to meet or uncomfortable meeting. And you still have an opportunity to change your mind.