How to choose a reverse mortgage lender
Deciding whether or not to take out a reverse mortgage is difficult. It requires people to take a big step and borrow against the equity they’ve built in their homes over the years, and in many cases agree to sell the home once they die instead of passing it on to heirs.
Finding a reverse mortgage broker/lender can also be a difficult task. For one, well-known large banks have exited the market, leaving mostly specialized companies that the average consumer is not familiar with. The industry also attracts unscrupulous lenders who take advantage of senior citizens. MOST lenders/banks/brokers do not offer face to face or in person reverse mortgages, this shouldn’t be a factor as ultimately it’s about which lenders gives you the best deal.
The lender you choose should treat the transaction as the serious commitment that it is and not rush you to make a decision. Not only will you have to work with the lender, but if you die or move into a long-term care facility, your family members will also have to work with the bank to pay back the loan. That makes it important to choose a company that will be transparent and easy to work with.
Start with a list of lenders
You should start with one or more of the following reputable sources for reverse mortgage lenders.
Click Quote Save only works with HUD approved lenders that have an A+ rating with the BBB.
National Reverse Mortgage Lenders Association. This is a trade association whose members have agreed to conduct themselves in a professional, responsible and lawful manner. You can start here to locate lenders in your area. Most reverse mortgage providers belong to the NRMLA, therefore, if you find a prospective lender, not in this directory, it could be a red flag.
For reverse mortgages insured by the Federal Housing Administration (FHA), you should also search the list of lenders at the U.S. Department of Housing and Urban Development (HUD).
To see if a prospective lender has complaints made against it, you can look at websites like the Consumer Financial Protection Bureau’s Consumer Complaint Database, ConsumerAffairs, and your local Better Business Bureau.
If possible, obtain referrals from friends, family members or acquaintances who have taken out a reverse mortgage and had a good experience. Also, if you work with a local money manager, CPA, attorney or other professional, they may offer an opinion on reputable lenders.
Don’t assume that everybody’s rates and costs are the same. Interest rates, origination fees, service fees, and closing costs will vary by lender, so ask prospective lenders what those costs will be and compare those among the lenders you are considering. Choosing the lowest rates and fees may not always be the best option because you may be sacrificing service quality.
If you are applying for an FHA-insured reverse mortgage, you will be required to participate in a counseling session to explain how the loan works and provide alternatives. If you opt for a private non-insured loan, you don’t have to undergo counseling, but it may be a good idea anyway.
A reputable lender should have no problem explaining the costs, benefits, and drawbacks of reverse mortgages. If a lending professional focuses too much on the benefits and not enough on the costs, it could be a sign that he or she is not considering your best interests.
Ask the lender how much experience he or she has with reverse mortgages. Also, ask them how the loan will work, especially the risks involved with making this commitment. Even if you understand how they work, the lender’s answer to the questions will help you ascertain their qualifications.
Make sure you clearly understand what requirements need to be followed to prevent the reverse mortgage loan from becoming due. The lender should be willing to provide the Total Annual Loan Costs (TALC) that show the estimated annual cost of the loan.
Another question to ask is what happens to the loan after you receive the funds. Many lenders will sell the loan to another financial institution, which means you and your family members will be dealing with an entirely different firm during the life of the loan. Much like traditional mortgages, your loan may be sold multiple times.
Don’t give in to pressure sales tactics, scare tactics or any sense of urgency. A reverse mortgage will be available to you the next day, week or year if you decide to wait.
Also, keep in mind that even after you sign a contract, you have three days to exercise a Right of Rescission, which means you can legally cancel the loan for any reason without penalty. If you exercise this right, you can start over with a different lender or forgo a reverse mortgage altogether.