How Does a Reverse Mortgage Work?

reverse mortgages

Reverse Mortgage Loans Explained 

Many seniors often find that a reverse mortgage loan can be difficult or complicated to understand, however, the process can be completed in just a few steps. A reverse mortgage is a type of loan that is reserved for older homeowners who need assistance supplementing their income during their golden years.


But how does it work?

A reverse mortgage loan uses the equity in your home to provide you additional cash flow to use however you need to. If you have medical expenses, home repairs and/or modifications, or simply need to bring down your living expenses, a reverse mortgage loan can lead to financial stability. To qualify, you must be at least 62 years of age and have enough equity in your home. 

Step 1: Meet with an Approved HUD Counselor

Before applying to a reverse mortgage loan, borrowers must meet with an approved U.S Department of Housing and Urban Development (HUD) counselor. This is to ensure you are discussing your options with an un-biased representative and you fully understand the obligations of the loan before entering. During your session, the counselor will provide you an overview of the loan process and answer any questions you may have. 

Meeting with a counselor is in important step in the process; you should take the time to discuss your options with family to ensure you are making the right decision for you and your loved ones. 

Step 2: Submit your Application 

To apply, you must speak with a reverse mortgage professional at an approved lender such as American Advisors Group. There you will follow the appropriate steps to submit the application with your reverse mortgage loan professional.  

To determine the amount, a licensed appraiser will conduct a home inspection and determine the cost based on comparable properties. Once appraisal is made, and you fact in the property value and any additional information, the loan will then move to the next step which is called “underwriting”. 

The amount you may be able to qualify for is dependent on the value of your home, the available equity, as well as the age of the youngest borrower on the application.

Step 3: Determine your Payout

Seniors who receive a reverse mortgage loan can opt to receive regular monthly payments, a lump-sum payment, or use it as a line of credit. You will work with the lender and your approved HUD-counselor to select the best payout option to meet your financial needs. The good news is that all HECM reverse mortgage loans are insured by the Federal Housing Administration (FHA) and back by the Housing and Urban Development (HUD), which protects seniors in every step. 

The reverse mortgage loan process can be simply and there are many online tools and resources you are able to refer to along the way. This option may not be for everyone, it can offer a number of advantages for borrowers, but it’s always important to weigh your pros and cons to ensure you are making the right choice for you. 

To discuss your options with a reverse mortgage loan professional, click here