How to Find the Best Reverse Mortgage Companies
If you own a home, are 62 or older and need extra money to supplement living expenses, a reverse mortgage could allow you to convert some of the equity in your home into cash without selling the property.
While they sound like a simple way to find extra cash, reverse mortgages aren’t without their potential pitfalls. Unscrupulous salespeople and lenders sometimes take advantage of older homeowners who don’t quite understand what a reverse mortgage entails, pushing them to use the proceeds in ways that are not beneficial to their longtime financial security. If you’re considering this loan option, pay close attention to the lender you decide to work with.
Finding a reputable lender can seem like an arduous task, but there are plenty of good reverse mortgage companies out there. This article will help you find the best reverse mortgage company for you.
What to look for in a reverse mortgage lender
Professional memberships. The first place to start your search is with the National Reverse Mortgage Lenders Association (NRMLA). All NRMLA members are required to adhere to a strict Code of ethics and professional responsibility, according to Jenny Werwa, a spokesperson for the organization. You can find a member of the NRMLA by using the Lender Locator tool on their consumer education site.
Certifications. There are other ways to identify a reputable reverse mortgage lender as well, such as looking for lenders who have received the Certified Reverse Mortgage Professional (CRMP) designation from the NRMLA itself.
“There are strict requirements that need to be met to not only get certified but to maintain certification,” said Matt Abadie, a mortgage expert with LendingTree. “Individuals that go through this process show their commitment to helping seniors in one of the biggest decisions they’ll make in their life.”
A CRMP is someone who has extensive knowledge and competency in the area of reverse mortgage lending and a dedication to upholding standards of ethical and professional behavior, added Eric Rittmeyer, president of Fidelis Mortgage in Baltimore.
To earn the title, candidates must have closed at least 50 reverse mortgages, complete continuing education courses, take a course on preventing and reporting elder abuse and complete a background check.
The NRMLA maintains a roster of Certified Reverse Mortgage Professionals on their consumer site.
Good customer service. Any mortgage loan officer worth their salt will sit down and thoroughly discuss a reverse mortgage with you before deciding to take that route. “There are lots of disclosures and many moving parts with a reverse mortgage,” Rittmeyer said. “Find a lender who will sit down with you in your home to guide you through the ins and outs of the program.”
If you feel as if you’re being rushed or pushed into pursuing a reverse mortgage before you entirely grasp what it means for you and your finances, do not continue to work with that lender.
Someone who encourages you to get your family and/or trusted advisers involved.
A good loan officer will not want to keep your friends or family out of the loop either.
Taking out a reverse mortgage can have a significant impact on your family. When you pass away or move out of the home, any non-borrowing spouses, children and other relatives or dependents that also live in the home will likely have to move.
Because the balance of the mortgage goes up over time, you or your heirs will likely need to sell the home in order to repay the reverse mortgage. If your heirs want to keep the home, they’ll need to come up with another source of funds to repay the loan.
“A reverse mortgage is a major financial decision,” Rittmeyer said. “While you may not want to get your children and/or advisers involved, you should still work with a lender that welcomes and encourages their involvement.”
How to comparison shop for your best reverse mortgage
Sites like LendingTree provide you with the opportunity to compare offers from several lenders at once. Visit the Reverse Mortgage online form, where you’ll be asked to fill out a few details about yourself and could potentially be matched with loan quotes from several lenders.
Once you’ve narrowed down your list of potential lenders, Rittmeyer recommends basing your decision on more than just cost.
“There are differences in costs from lender to lender,” Rittmeyer said. “The initial instinct is to select the lender with the lowest upfront costs. This is not the best way to select your reverse mortgage lender.”
The closing costs associated with a reverse mortgage are similar to those of a traditional mortgage. Typically, you can choose to pay them out of pocket or finance them into the mortgage. Here are some of the standard closing costs for a reverse mortgage:
- An origination fee to cover the lender’s costs of processing the loan. Origination fees are typically the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the value over $200,000. Origination fees on a government-backed home equity conversion mortgage (HECM) are capped at $6,000.
- The mortgage insurance premium (MIP) paid to the Federal Housing Administration (FHA) provides protection to the lender on a HECM. On an HECM, you are charged an upfront MIP of 2% of the home’s value or the FHA lending limit (currently $679,650), whichever is less.
- An appraisal fee to determine the value of your home and ensure there are no structural defects. Appraisal fees vary, but typically cost around $450. This fee generally must be paid out of pocket at the time of the appraisal rather than financing the cost into the mortgage.
- A credit report fee (typical cost: $20 to $50) to check your credit for any tax liens or other judgments.
- A flood certification fee (typical cost: $20) to determine whether your home is located on a flood plain.
- An escrow, settlement or closing fee (typical cost: $150 to $800) to cover the title search and other required closing services.
- A document preparation fee (typical cost: $75 to $150) to prepare final closing documents.
- A recording fee (typical cost: $50 to $500) charged by your county recorder’s office.
- A courier fee (typical cost: under $50) to overnight documents between the lender and title company.
- Title insurance to protect the lender or borrower against any losses from disputes over property ownership. The cost of title insurance varies based on the loan amount.
- A pest inspection (typical cost: under $100) to check for termites and other infestations.
- A survey (typical cost: under $250) to determine official boundaries of the property.
In addition to upfront fees, Rittmeyer recommends considering the following factors:
- Closing fees and monthly service fees. Like any mortgage, fees should be considered when you’re weighing the math of a reverse mortgage. In addition to upfront origination fees and other closing costs, most reverse mortgage lenders charge monthly servicing fees over the life of the mortgage. Along with monthly interest, these servicing fees chip away at the equity in your home over the life of the loan. A loan with lower servicing fees can help you preserve your home’s equity. “Closing fees and servicing fees can vary greatly from lender to lender,” Abadie said, which is all the more reason to compare lenders.
- Interest rate. In a traditional mortgage, the amount you owe goes down each month as you make monthly payments on principal and interest. With a reverse mortgage, you don’t make monthly payments. The balance owed grows each month as interest and fees are added to the loan balance. Choosing a loan with a lower interest rate can make a significant difference in how much equity there is in your home when it comes time to repay the reverse mortgage. “While there isn’t as much variability as fees, it can still differ between lenders,” said Abadie.
- Caps on interest-rate adjustments. Interest rates on reverse mortgages may be fixed or adjustable. If your interest rate is adjustable, there should be a cap on interest-rate adjustments. In other words, the adjustable rate cannot increase over a certain percentage per year and over the life of the loan. This cap protects you from the potential effects of rapidly rising interest rates.
“A reverse mortgage expert will sit down with you and explain all these differences and how they impact your loan in both the short- and long-term,” Rittmeyer said.
Types of reverse mortgages
Reverse mortgages generally come in three forms:
Home Equity Conversion Mortgages
HECMs are government-backed reverse mortgages insured by the U.S. Department of Housing and Urban Development (HUD).
Proceeds of a HECM can be used for any purpose, but before you apply, you must meet with an independent housing counselor from a HUD-approved counseling agency. The counselor will help you understand the pros and cons of a reverse mortgage and consider potential alternatives.
The amount you can borrow under a HECM depends on:
- Your age
- The value of your home
- Current interest rates
- A financial assessment of your ability to continue paying property taxes, homeowners insurance and other obligations
Proprietary reverse mortgages
Proprietary reverse mortgages are backed by private lenders. Borrowers with high-value homes may be able to borrow more with a proprietary reverse mortgage than they can with a HECM.
Single-purpose reverse mortgages
Single-purpose reverse mortgages are offered by state and local government agencies and nonprofit organizations. As the name implies, proceeds from a single-purpose reverse mortgage may be used for only one purpose. For example, the lender may provide reverse mortgages solely to help homeowners pay for home repairs or improvements.
Typically, single-purpose reverse mortgages are only available to low- to moderate-income borrowers. While these loans may be the lowest-cost option, their availability is limited.
Rittmeyer recommends discussing the different reverse mortgage options with your potential lenders. “While the federally insured HECM is the most popular program by far,” Rittmeyer said, “borrowers with higher home values ($700,000 and above), may benefit from a proprietary reverse mortgage. Ask potential lenders about their thoughts on both products.”
Reverse mortgage counseling: Questions to ask
FHA guidelines require all potential reverse mortgage borrowers to complete a counseling session with an FHA-approved counseling agency. Lenders are required to give borrowers a list of local and national mortgage counseling agencies to select from.
“This counseling session is normally completed after the meeting in person with a lender and is a great way for borrowers to confirm information given to them by the lender,” Rittmeyer said.
To prepare for your counseling session, Werwa recommends taking a look at the seven questions to consider outlined in the NRMLA’s free Reverse Mortgage Self-Evaluation checklist:
How do you intend to use your reverse mortgage proceeds?
Although you can generally use the proceeds from a reverse mortgage in any way you choose, the NRMLA states reverse mortgage borrowers are most successful when borrowers have a plan to ensure the loan proceeds last for as long as the borrower wants to stay in their home.
Do you fully understand your obligations as a borrower under a reverse mortgage?
While borrowers do not have to make monthly payments on a reverse mortgage, there are other conditions of the loan they must meet to stay current on the loan. These include continuing to live in the home, maintaining the condition of the property and continuing to pay property taxes, insurance and association dues.
If you are married, will your spouse be a co-borrower on your loan?
Your spouse may not be eligible to be named as a borrower on the reverse mortgage if he or she is under the age of 62, not named on the title of the home or not using the home as a principal residence. Whether your spouse is eligible to be named as a borrower or not, it’s important to consider what will happen if your spouse survives you.
If your spouse is a co-borrower or eligible spouse, he or she can continue living in the home after you pass away or move out of the home, while paying taxes and insurance. Otherwise, he or she will need to move out or repay the loan when you are gone.
How will your reverse mortgage loan be repaid?
Once you pass away or move out of the home, you or your estate will need to repay the lesser of either the reverse mortgage loan balance or 95% of the home’s appraised value at that time. If you intend for someone to inherit the home, you’ll need to consider whether the reverse mortgage can be repaid without selling the property.
Do you receive assistance under any government programs that are based on your current income?
Receiving proceeds of a reverse mortgage does not affect regular Social Security and Medicare benefits, but if you receive Medicaid or Supplemental Security Income (SSI) benefits, the proceeds may impact your eligibility for benefits.
How long do you and your spouse plan to remain in the home?
Like any mortgage, a reverse mortgage comes with significant upfront costs. If you are not likely to stay in your home for many years after obtaining a reverse mortgage, you might want to consider other lower-cost alternatives.
Have you considered other strategies to supplement your retirement income?
If you need the proceeds from a reverse mortgage to cover monthly living expenses, you might first consider whether you qualify for other public or private benefits available to low-income people.
If you have trouble answering any of these questions on your own, your mortgage counselor can answer any questions you have including whether you should proceed with a reverse mortgage loan application.
When you meet with the counselor, here are some topics to discuss:
- If you are considering a reverse mortgage to pay for home repairs, utilities, food, medications or other necessities, are there any public or private benefit programs that can help you cover these costs instead of taking out a reverse mortgage?
- Is a reverse mortgage the right choice for your financial situation?
- What are your repayment options?
- What are the tax implications of a reverse mortgage?
- Can you afford to continue paying property taxes and insurance?
- Will taking out a reverse mortgage impact other financial assistance you currently receive?
The Federal Trade Commission cautions homeowners to be wary of salespeople pushing reverse mortgages as a way to pay for home improvement services or purchase other financial products.
If you feel as though you’re being pushed into applying for a reverse mortgage, you’re likely working with the wrong lender. You can submit a complaint with the CFPB online at consumerfinance.gov/complaint or by calling (855) 411-2372.
A reputable reverse mortgage lender won’t engage in deceptive advertising or try to pressure you into applying before getting all of the information you need to make an informed decision. Reverse mortgages aren’t for everyone, but if you choose a trustworthy and competent lender, and read the fine print, a reverse mortgage can help you make the most of your home’s equity during your golden years.