The quick answer is “no”, it is a completely different type of mortgage than the traditional one that almost everyone is familiar with if they have ever bought a home or refinanced.
They are not underwritten using “debt to income” ratios, FICO scores or “loan to value” calculations, but instead use the net cash flow of potential borrowers after all housing expenses have been deducted along with any debt. credit card, installment loans and utilities. .
Included in this overview is a 24-month history of property taxes, homeowners insurance, and any HOA fees to verify they have been paid on time.
A credit report is done to determine if there have been late payments on credit cards or installment loans in the last 24 months.
If there have been any late payments during that time period, the lender will request a letter of explanation and may require that some of the reverse loan funds be set aside in an escrow account to pay ongoing housing expenses.
I am frequently asked how long it will take to complete a loan and that depends on the cooperation of the borrower when asked to provide all necessary documents at the time of application.
And due to the fact that more paperwork is required from the borrower, it usually takes around 45 days to complete the loan and have the loan documents signed by the borrower.
What should a person look for in a reverse loan?
They cannot be compared to traditional financing because they are so different and the loan amount is calculated based on the age of the youngest borrower and also depends on whether there is an existing mortgage to pay and the value of the property.
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There are no “Points”, but sometimes an origination fee is charged that is determined by the loan amount and the interest rate.
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You cannot collect “junk” fees from lenders, and regardless of which company offers the FHA HECM program, they all have exactly the same interest rates and costs.
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All rates are regulated by the federal government.
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This is a mortgage offered by the FHA and is insured by the federal government.
The choice of the company to represent you comes down to whether or not they will meet you in person at your home, or whether they expect you to complete a loan application and submit all your paperwork without helping you through what can be a confusing experience.
Ultimately, a reverse loan is still a mortgage and is recorded against the property in question as a bond, but there are no mortgage payments and the comparison to traditional financing ends there.
