How do you get a reverse mortgage?
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Getting a reverse mortgage loan is different from getting a regular mortgage, the kind you use to buy a home. Not only does the product itself have significant differences, so do the requirements to qualify and the lenders that offer it.
Here’s what you need to know about how to get a reverse mortgage loan.
Find reverse mortgage lenders
Before you start looking for a loan, you should know that not just any homeowner can get a reverse mortgage loan. You must be at least 62 years old, the home must be your primary residence and you must have paid off most or all of your regular mortgage.
To get a reverse mortgage loan, you need to go to a reverse mortgage lender. The banks, credit unions and mortgage brokers that help homebuyers get regular, traditional mortgages are usually not from the same institutions that offer reverse mortgage loans.
Wells Fargo started offering reverse mortgage loans in 1990 and Bank of America in 2006, but both pulled out of the market in 2011.
“Because of the high servicing costs and foreclosure risk, they have bailed out,” says Greg Cook, vice president of Reverse Lending Experts in Orange County, California.
The top reverse mortgage loan leaders
Reverse mortgages are labor intensive and time consuming, so most credit unions don’t have the staff to originate and process them, he says.
Instead of lenders you might recognize, American Advisors Group was the largest reverse mortgage lender by far, as of October 2016. The company completed almost 11,000 reverse mortgage loans over the past year. In order of loan volume, other top companies are:
- Finance of America Reverse
- One Reverse Mortgage
- Reverse Mortgage Funding
- Liberty Home Equity Solutions
- RMS/Security One Lending
- Live Well Financial
- Nationwide Equities Corp.
All of these companies offer home equity conversion mortgages, or HECMs, the most common type of reverse mortgage loan.
There also are single-purpose reverse mortgage loans offered by some local governments and nonprofit organizations to help senior homeowners make repairs or pay property taxes.
Then, there are proprietary reverse mortgage loans, also called jumbo reverse mortgages. These may be a good fit for borrowers whose homes are worth more than the FHA’s $625,500 lending limit for HECMs.
Only two lenders currently issue jumbo reverse mortgage loans: Finance of America Reverse, which issues reverse mortgage loans up to $2.25 million, and American Advisors Group, which issues reverse mortgage loans in select states for up to $3 million.
Get to know reverse mortgages better
If you know a friend or relative who had a positive experience with a reverse mortgage lender, that’s a good place to start. If you have a financial adviser, that’s another good source for a referral.
If you can’t get a recommendation from someone you trust, check the Better Business Bureau’s website to see a lender’s complaint history before you decide to do business with them.
Not all lenders are licensed to offer reverse mortgage loans in all 50 states and the District of Columbia. Make sure a lender you’re considering operates in your state before you delve into researching that company.
Lender websites will have a licensing page, often available through a link at the bottom of the home page. This page will tell you the states that the lender can legally offer reverse mortgage loans in. It also will give you the license number, which you can use to make sure the lender’s license is active and search for regulatory actions against the company through your state’s regulatory agency.
For example, in California, you can look up a reverse mortgage lender’s license at the California Department of Business Oversight website. You also can look up an individual reverse mortgage lender’s license at the NMLS Consumer Access website.
In addition, you can find reverse mortgage lenders in your state by doing a search at the website of the National Reverse Mortgage Lenders Association, an industry group that promotes reverse mortgage loans.
“Find someone who specializes in reverse mortgages and is willing to sit with you and take as much time as necessary to answer all your questions,” Cook says.
As with any major purchase, you should get offers from at least three reverse mortgage lenders to compare your options because fees and interest rates vary by lender.
The comparison process can be complicated since there are different ways to receive your reverse mortgage loan proceeds. If you’re interested in a lump sum, make sure you’re comparing one lender’s lump sum offer to another’s. Same if you’re interested in a credit line, a stream of monthly payments or some combination of the different payment options.
It’s just like when you’re getting a traditional mortgage. It you compare one lender’s offer for a 30-year mortgage against another lender’s offer for a 15-year mortgage, it wouldn’t give you an accurate picture of how each lender’s fees and interest rates differ.
“Any reputable lender will provide fees in writing prior to moving forward,” says Scott Lief, a reverse mortgage lender with Atlantic Home Loans in Parsippany, New Jersey.
Make sure the fees they plan to charge you don’t exceed legal limits, which are explained at the Consumer Financial Protection Bureau’s website.
To get a sense of whether a lender is offering you a fair rate, you can track the lowest available reverse mortgage loan interest rates at the Mortgage Professor’s website.
Complete reverse mortgage counseling
All HECM borrowers must complete a one-on-one counseling session with a reverse mortgage loan counselor before they can take out a loan. The counseling can’t come from a lender.
In your counseling session, you should make sure you understand how a reverse mortgage loan works, how the specific payment option you’re interested in works, how interest is calculated and what fees you’ll pay.
It’s also important to know what happens if you want to move or if you have to move into a nursing home long-term, and how anyone else who lives in your home could be affected by your reverse mortgage loan.
You should also talk about where the money to pay your property taxes and insurance will come from and ask questions about any other topics you don’t understand.
Expect to pay about $125 for the counseling service, though it may be free if your income is less than twice the poverty level. A good counseling session will help you avoid expensive reverse mortgage loan surprises.
Complete a reverse mortgage financial assessment
All HECM borrowers must also complete a financial assessment to make sure they have the funds and the willingness to pay their property taxes and homeowners insurance on time. The government recently added this requirement to make sure borrowers don’t lose their homes to foreclosure for failing to make these required payments.
The financial assessment looks at your income and credit history, but it isn’t used to approve or deny you for a loan. Rather, if it looks like you might have trouble keeping up with insurance and taxes, the lender will set aside part of your reverse mortgage loan proceeds to pay these obligations for the life of the loan.
The bottom line
Getting a reverse mortgage can be time consuming, and it’s best to proceed slowly and cautiously to make sure you’re getting the best pricing and fully understand what you’re signing up for.
Before you sign the closing documents, make sure you know about these 7 reverse mortgage red flags to avoid. Also, educate yourself about what a reverse mortgage is and how it works if you haven’t already.