Every person could benefit from a little extra income when they retire. Today, older adults’ housing wealth has a new record of $11.81 trillion, meaning you could have more equity in your house than you realize.
A reverse mortgage is a financial tool that enables homeowners to use their home equity to access cash. Taking out a reverse mortgage can be beneficial for people who are retired or nearing retirement age and need extra money to supplement their incomes. It can also be used for home improvements, medical bills, and other large expenses. With a reverse mortgage, you can access your home’s equity without selling your property or taking on more debt. This type of loan also allows you to remain in your home while still receiving funds from the lender.
Reverse mortgages are a unique financial product, and their terms can be complex, so you need to familiarize yourself with the process for obtaining a reverse mortgage. Before applying, it’s crucial to know how they work and what their financial implications are.
If you’ve reviewed all of your options and decided to opt for this type of loan, the next step in obtaining a reverse mortgage is gathering the necessary documents. Below, we share what documents you’ll need to apply for a reverse mortgage.
Reverse Mortgage Application
The first document you’ll need is the reverse mortgage application itself. You can fill out the application with help from reverse mortgage lenders.
The typical reverse mortgage application will ask for details about the property and the owners. It may also request a list of their income, assets, and any liens on the property. To get a clearer idea of the process, the Department of Housing and Urban Development (HUD) provides a reverse mortgage application as part of its sample reverse mortgage documents.
A valid ID showing your age is the most important piece of information a reverse mortgage lender will ask you to show. You must be 62 or older to qualify for a reverse mortgage loan. According to reverse mortgage lending professionals, in most cases, a valid driver’s license is enough.
This requirement is not only a way to prove that you are old enough to qualify for a reverse mortgage loan but also helps the lender comply with “know your client” rules.
Verification of Principal Address
You can get a reverse mortgage on your primary home if you own it and live there for at least half the year. Vacation homes are ineligible. Your driver’s license address will usually be the same as your primary address. Your lender may request other documents, such as tax records or bank statements, if you do not have a valid driver’s license or if it does not reflect your principal address.
Verification of Income
The verification process involves obtaining documentation that shows your income over a certain period. This is to ensure that you have the financial means to make payments on the loan when they’re due.
Income verification is necessary for lenders to assess the borrower’s ability to continue to maintain their home and pay the taxes and homeowners insurance premiums.
You may receive income from a variety of sources, including social security, pensions, and distributions. A part-time position could also be a source of income. To verify your income, the lender may ask for documents such as a social security award letter, W2s, or bank statements.
Current Mortgage Statements
You’ll have to show the lender documents that prove how much money you still owe if you are paying off your mortgage. Your monthly mortgage statement should show you all relevant information, including the current loan balance.
It is important to know your equity because that will determine how much money you can borrow through a reverse mortgage. Home equity refers to the difference between the value of a house and the amount owed on it. Lenders usually demand that borrowers use reverse mortgage funds to fully pay off any outstanding mortgages. This will reduce the equity you own and the amount of money you can borrow.
You must undergo reverse mortgage counseling before the lender will close your loan. The agency you choose should be certified by the U.S. Department of Housing and Urban Development.
Reverse mortgage counseling ensures that the borrower has done the necessary research and understands the product. Counseling can be conducted by phone or in person. The majority of people choose to do this over the phone. You can get the list from your reverse mortgage lender or find it on HUD’s website. Once you’ve completed counseling, you’ll receive a certificate. You will be required to provide a copy of the certificate to the reverse mortgage lender.
Reverse mortgages are complex, but they’re a great financial product that can help senior homeowners supplement their retirement income and afford to continue living in their homes.
If you’re considering applying for a reverse mortgage, it is advisable to start preparing early and gather all the required documents. This way, you can speed up the application process and make it much smoother.
Stacey Howard is a passionate blogger having 6 years of experience in accounting & bookkeeping. She has been working as an accountant in Cogneesol. Due to her passion, she has contributed significantly through her write-ups by sharing an informative article about multiple accounting industries.