A reverse mortgage comes with a good number of advantages and benefits. To get the best out of it, always ensure that you carry out proper research.
At some point in our lives, most of us have been through the mortgage process. Especially when we get to the point we would like to retire, most people at this point consider obtaining a reverse mortgage.
What is a Reverse Mortgage?
A reverse mortgage is a portable loan secured by a property, so the borrower can get a portion of their equity but will not need to repay the loan until they have vacated the property. These loans could be offered by a private firm, a non-governmental organization, or the Home Equity Conversion Mortgage (HECM, insured by the U.S. federal government). The third mortgage, i.e., the loan given by the HECM, is the most popular type of reverse mortgage.
Generally, the older the homeowner gets, the interest rates begin to drop, and the property increases in value. However, you may be wondering why anyone would work so hard to pay for their home and then want to borrow against it to incur more debt? The answer is that the money borrowed from a reverse mortgage will not need to be paid back until the borrower vacates the property or dies.
Furthermore, the amount of money the borrower owes will never be more than the value of the house. Regardless of how much is borrowed and how the value of the property is affected over time. The best part about this portable mortgage is that you don’t have to worry about taking a second mortgage or bad credit.
So if you’re thinking of getting a reverse mortgage, here are ten essential tips you need to know as you shop around to find the best deal.
- Consider the Interest and Fees
You can start by comparing traditional mortgage interest rates with that of a reverse mortgage. For a conventional forward mortgage, interest is added in the monthly payments and is paid bit by bit.
However, for a portable mortgage, a borrower does not make interest payments during the lifespan of the loan. Instead, it is usually charged at rates similar to other mortgages; thus, it builds up. Although you no longer need to pay mortgage payments, other responsibilities homeowners insurance, taxes, homeowners association fees, etc. still apply.
- Carry Out a Detailed Research and Compare Quotes
Gather all the information you can from online research on how reverse mortgages work. Also, seek advice and testimonials from your family, friends, or acquaintances that are conversant with reverse mortgages. You can likewise reach out to several lenders for their brochures and quotes.
When comparing these quotes, look out for the lenders with the most competitive rates.
- Consult Official Mortgage Institutions
Once the list of potential lenders has been narrowed down, consult necessary resources that can shed more light on the lender. For example, you can check the National Reverse Mortgage Lender Association (NRMLA) or the Better Business Bureau (BBB) websites to know if a lender is duly registered. Some lenders also provide answers to frequently asked questions on these websites.
Also, remember to check if a lender has gotten their approval from the Federal Housing Authority (FHA). Government agencies such as the Consumer Financial Protection Bureau and FHA also provide online guides and information on reverse mortgages.
- Inquire About All Terms and Conditions.
Another crucial tip is to go for the best terms and conditions after you have made your inquiries. These terms and conditions often vary from lender to lender. So make sure you get the full details on credit score qualification, interest rates, closing costs, etc. It will enable you to make a more informed decision.
- Watch out for Scammers
It is crucial to look out for scammers who use a reverse mortgage to get money into victims’ hands so they can steal. Another scam trick to look out for is where the lender offers seniors in low-income communities a “free” house and then moves them into a newly renovated fixer-upper. Then makes them take out a reverse mortgage on the home and absconds with the money once it comes in.
Some scammers also show interest in buying a house in the short term at ridiculous prices. Whenever you suspect such foul play, let your reverse mortgage counselor or loan servicer know immediately so a proper complaint can be filed.
- Talk to a Professional for Counseling
One of the requirements of getting a reverse mortgage is that a potential buyer must get counseling from a HUD-approved third party. Counseling is done via phone call or in person. And, the loan processing only commences when you have received a signed certificate from the counselor. A full list of certified HECM counselors is available on the HUD website.
Additionally, lenders ought to furnish potential borrowers with a list of reverse mortgage counseling agencies. Where a lender dissuades you from going for counseling or forces you towards a specific agency, it is a potential red flag.
- Applying for a Reverse Mortgage
An application should be accompanied by documents such as proof of age via a valid ID. Also, include a confirmation of your Social Security Number, a copy of your homeowners’ insurance coverage, etc. Remember to review your application forms carefully before submitting them correctly. Besides, you can engage professional writing services review websites like Pick The Writer or Writing Judge to help you with this process.
- Getting an Appraisal Report of the Home
The appraisal is another crucial aspect of getting a reverse mortgage. Again, the lender ought to refer you to an FHA-approved appraiser for this process. It is advisable to be present at the time of the appraisal process, so you can ask the certified appraiser any questions you may have. When the appraisal is done, a detailed report is given to you.
- Loan Underwriting and Deal Closing
An FHA approved underwriter must underwrite the loan you obtain from a reverse mortgage. Usually, the lender should refer you to one. Once underwriting is completed, a meeting to wrap up the deal with your lender can be set up.
It is also an opportunity for you to review all your application forms, terms, and conditions, and other relevant information to ensure it’s all in order. The deal is then signed. However, if you change your mind on the mortgage, you can renege on it within three working days of signing.
- Obtaining the Funds.
Once the deal is sealed, you will receive the funds in a lump sum, or, alternatively, as a monthly fixed payment, a line of credit, or both.
A reverse mortgage comes with a good number of advantages and benefits. To get the best out of it, always ensure that you carry out proper research. And, seek the help of professionals, family, and friends in your application process.