The quick answer is no, it’s a completely different type of mortgage than the traditional mortgage that almost everyone knows if you’ve bought or refinanced a home.
It is not insured using “debt-to-income” ratios, FICO scores, or “insurance-to-value” calculations but uses the net cash flow of potential borrowers after deducting all housing expenses along with any credit card debt, installment insurances, and utilities.
This overview includes a 24-month history of property taxes, homeowners insurance, and any around-the-clock fees to verify they’ve been paid on time.
A credit report is done to determine if there have been any late payments on credit cards or installment insurances for the previous 24 months.
If there are some late payments within that time period, the lender will request a cover letter and may request that a portion of the money from the reverse insurance be set aside in an escrow account to pay for ongoing housing expenses.
They often ask me how long it will take to complete the insurance and this depends on the cooperation of the borrower when they are asked to provide all the required documents when applying.
Due to the fact that more paperwork is required from the borrower, it usually takes about 45 days to complete the insurance and the insurance documents are required to be signed by the borrower.
What should a person look for in a reverse insurance?
It cannot be compared to conventional financing because they are very different and the insurance amount is calculated based on the age of the youngest borrower and also depends on whether there is an existing mortgage to be paid off and the value of the property.
- There are no “points” but sometimes an origination fee is charged and this is determined by the insurance amount and interest rate.
- No “junk” lender can be charged and no matter which company offers the FHA HECM program, everyone has the same interest rates and costs.
- All fees are regulated by the federal government.
- This is the mortgage provided by the FHA and insurance by the federal government.
Choosing which company to represent you comes down to whether or not they will meet you in person at your home or they expect you to complete a insurance application and submit all of your documents without helping you with what can be a confusing experience.
In the end, a reverse insurance is still a mortgage and is recorded against the property that is under mortgage, but there are no mortgage payments and the comparison to conventional financing ends there.