The quick answer is “no.” They are a completely different type of mortgage than a conventional mortgage, familiar to almost everyone who has ever bought a home or refinanced a home.
These mortgages are not based on debt-to-income ratios, FICO scores or “loan-to-value” calculations, but instead use the potential borrower’s net cash flow after deducting all housing expenses, along with credit card debt, installment loans and utilities.
Included in this summary is a 24-month history of property taxes, homeowner’s insurance and all Homeowner’s Association (HOA) dues to verify that they have been paid on time.
A credit report is generated to determine if there have been any late payments on credit cards or installment loans in the past 24 months.
If there have been late payments during this period, the lender will request a letter of explanation and may require that a portion of the reverse loan funds be set aside in an escrow account for ongoing housing expenses.
I am often asked how long it takes to close a loan, and that depends on the borrower’s cooperation when asked to provide all the required documents at the time of application.
And due to the fact that more paperwork is required from the borrower, it usually takes about 45 days to close the loan and have the loan documents signed by the borrower.
What should a person look for in a reverse loan?
They are not comparable to traditional financing because they are very different and the loan amount is calculated based on the age of the younger borrower and also depends on whether there is an existing mortgage to pay and the value of the property.
There are no “points” but sometimes an “origination fee” is charged based on the amount of the loan and the interest rate.
There can be no “junk” fees charged by the lender, and regardless of who the company offering the FHA HECM program is, they all have exactly the same interest rates and costs.
All rates are regulated by the federal government.
This is a mortgage offered by the FHA and insured by the federal government.
When it comes to choosing a company to represent you, it comes down to whether they will meet with you in person at your home or wait for you to fill out a loan application and submit all the paperwork without helping you, which can be a confusing experience.
Ultimately, a reverse loan is still a mortgage and is recorded as a lien on the subject property, but there are no mortgage payments involved and the comparison to traditional financing ends there.
For more information on qualifying for a reverse loan and its exact cost, please call me at 877-507-7787 or visit my website: http://reverseloanconsultant.com.