Over the years I've run across a number of ways borrowers have gotten themselves into trouble when applying for a reverse mortgage.
Here is an idea of some of the most common mistakes people make. I trust it will help you avoid some of the most common pitfalls when applying and going into underwriting.
1. Not having any urgency
I can't tell you how many borrowers I've tried to help that need to change something in their life that the reverse mortgage is a great fit for. Fortunately, for a lot of them, it ends up being exactly what they needed to help get back on track and secure their retirement. For a lot of others, however, the process can take a swift turn to the ugly when they fail to get things done at a reasonable pace. While it's understandable that the reverse mortgage can be daunting and at times feel overwhelming it is not a tool that everyone can qualify for. What we see happen quite a bit is people who would otherwise qualify, over time no longer will qualify. This can happen in the middle of the process and can be a real blow to someone's expectations and their options. If your loan officer is suggesting you make haste and have some urgency, there is likely a good reason for them to be asking.
2. Not following instructions
The reverse mortgage, like all lending, has strict requirements and underwriting that needs to be satisfied before money will be lent. It's fairly common for people to ignore direct instructions on what exactly is needed. If a lender or loan originator asks you for a statement with all pages including blanks, you need a statement with all pages including blanks. Anything less than that will not be accepted and the process stops. The process stopping and grinding to a halt is one of the top frustrations borrowers have. To avoid it, it is best to pay careful attention to exactly what is being asked of you and to provide those items and documents to the letter of the request.
3. Spending assets
The reverse mortgage is one of the few lending instruments that allows you to qualify based off of assets and not a true income stream. This comes in incredibly helpful to retirees. However, if you're actively spending down your assets you may be spending down the very 'income' needed to qualify for your loan. Financial shocks, unexpected expenses, a drop in market value are all things that can disrupt and disqualify an otherwise solid borrower from having their reverse mortgage approved. Be careful not to spend down assets unnecessarily during the process.
4. Credit card spending
To qualify for the reverse mortgage you need to show a certain income with money left over at the end of every month to cover the anticipated costs of taxes and insurance (in most cases). If income and assets are important, expenses are equally important. Adding a balance to a credit card might not seem like a big deal, but if your minimum payment goes up, so does your monthly expenses. What may have been fine before that $200 purchase, may not be ok anymore. Be extra sensitive to your credit card spending during the process to help protect against failing the income requirement tests.
5. Expired IDs
Sounds simple right? You need to have non-expired, acceptable identification. This is typically: a drivers license, a passport, state issued identification. A birth certificate may be acceptable in some instances as well. Failure to have up to date identification is a hard stop for the loan process. Too many people end up aging out of their identification and causing serious delays and issues with the reverse mortgage application. Before applying for any lending make sure you have non-expired identification available for your lending institution.
