- Stop & take a deep breath: Is a reverse mortgage right for you?
- Learn where to find reviews of reverse mortgage lenders.
- Which fees are fixed, and which fees reverse mortgage lenders can discount or waive.
How to Pick a Reverse Mortgage Lender
It’s easy to find reverse mortgage lenders. It’s even easy to find reverse mortgage lenders you can trust. The reverse mortgage market is competitive, and many reverse mortgage lenders compete to earn your business. Finding a reverse mortgage lender is the easy part. The hard part is deciding whether a reverse mortgage makes sense.
Reverse Mortgages — The Hard Part
You will find many reverse mortgage lenders who will tell you a reverse mortgage is a good choice for you. But you need to decide that for yourself. Understand all of the positives and negatives that make up a reverse mortgage. Start by reading an introduction to reverse mortgages. Then read pros and cons of reverse mortgages and how reverse mortgages compare to other home equity loans. Unfortunately, some unscrupulous lenders prey on unwary consumers, so it pays to be watchful of reverse mortgage scams.
After you understand the basics of reverse mortgages, then take a hard look at your financial situation. Decide how long you expect to remain in your home. Reverse mortgages are expensive as short-term loans because of the up-front costs such as mortgage insurance premiums. If you are borrowing for a short length of time and plan to sell your home in the next year or two, consider a HELOC.
Decide if you can accept the sale of your home when if you move elsewhere or pass away. A reverse mortgage is not free money! Include trusted family members, especially grown children, in your reverse mortgage decision process. As an adult and a homeowner, you have the right to make your own decisions regarding your property. Because a reverse mortgage impacts inheritance, try to get consensus or at least understanding among your heirs before moving ahead. If one or more of your heirs wish to inherit your house, ask if they are willing to help you financially instead of you choosing a reverse mortgage.
Reverse Mortgage Counseling
Before you start reverse mortgage shopping, consult with a HUD-approved reverse mortgage counselor or counseling agency. See the Home Equity Conversion Mortgages Housing Counselor Roster and find a counseling agency near you. You must consult with a reverse mortgage counselor before the FHA will approve a reverse mortgage loan, so do not skip this step.
The fees for reverse mortgage counseling services are capped by HUD at $125. Expect to pay from $75 to $125. The counselor will help you decide if a reverse mortgage meets your needs, and may recommend another loan if a reverse mortgage is not right for you. There are several types of reverse mortgages, and several ways to receive a reverse mortgage pay-out. A counselor will help you pick the loan that meets your needs best.
A reverse mortgage counselor may not be involved in the sale of annuities, insurance, investments, or other type of financial service or insurance. The reverse mortgage counselor may not recommend a specific lender or mortgage broker or to a limited list of lenders. If you do not believe your reverse mortgage counselor is truly independent, then see another.
Reverse mortgage lenders offer the same loans. To win your business, reverse mortgage lenders must compete on interest rates and fees. Some costs are fixed and do not vary from lender to lender. Fixed costs will probably be familiar to you. Interest rates and fees vary from lender to lender. Reverse mortgage lenders charges include the following:
- Application Fee: Usually an appraisal to learn the market value of your home. May also include review of federal records to learn if you are delinquent on any federal loans, such as federal student loans. Some states, such as California, prohibit lenders from charging up-front fees for reverse mortgages, with the exception of appraisals and records checks. Some lenders add any application fees into the loan, and are disclosed when the loan closes.
Origination and Ongoing Fees: Many fees are similar to those found in conventional mortgages, and include title search and insurance, surveys, inspections, recording fees, mortgage taxes, and similar hard costs. Lenders may not pad these fees and can only pass them on to the borrower without tacking on extra amounts.
Two fees vary from lender to lender. One is the origination fee. For FHA HECM reverse mortgages, which almost all reverse mortgages are today, the lender can charge up to $2,500 if the home is valued at less than $125,000. For homes valued at more than $125,000 lenders can charge 2% of the first $200,000 plus 1% of the amount over $200,000. The law caps origination fees at $6,000. Some lenders waive or offer discounts on origination fees. Beware, a lender offering discounts or waived origination fees may charge higher interest rates, which may cost you more in the long run. The lesson here is to compare the total cost of the loan, and avoid fixating on a detail buried in a loan proposal
The other variable fee is monthly servicing. The maximum charge is $30 if the interest rate adjusts annually, or $35 if the interest rate adjusts monthly.
- Mortgage Insurance Premium (MIP): FHA’s MIP is the same for all lenders. MIP guarantees you will receive expected payments. There are two MIP premiums: The first is an initial mortgage MIP at closing that varies with the type of loan you chose and the amount. The second is an annual fee that equals 1.25% of the mortgage balance. MIP is a fixed fee lenders cannot waive, increase, or decrease.
Picking a Reverse Mortgage Lender
Compare what readers say about reverse-mortgage-lenders. Learn if the lender is a member of the Better Business Bureau (BBB), or the National Reverse Mortgage Lender Association (NRMLA), or the National Association of Mortgage Brokers (NAMB). Membership in these organizations does not mean the lender is honest or offers customers great deals. It does mean the lender’s management has made a statement the lender will adhere to these organizations’ standards when conducting business. Be certain to check to see the lender is an the list of FHA-Approved Reverse Mortgage Lenders.
Shop around. Compare the offers you receive to determine if you are getting the most competitive rates.