About Working with Reverse Mortgage Lenders

FinanceMortgage & Debt

  • Author Karen Zabel
  • Published January 31, 2010
  • Word count 816

Reverse mortgages are one of the most popular and fastest growing segments of the

mortgage industry today. Each year, more and more seniors turn to reverse mortgages to allow them to tap into the value of their homes and realize their lifelong dreams, or just to provide an extra source of income to help them live their lives more comfortably.

Like home equity loans, or second mortgages, reverse mortgages let you enjoy the equity you have built up in your home over time without having to sell your home. But unlike home equity loans, you do not make payments during the loan’s term; the entire loan, including accrued interest, does not become due until you move out of your home permanently.

And unlike home equity loans, where missed payments can result in the bank foreclosing on your home, a reverse mortgage has no payments and hence, there is no risk of foreclosure due to nonpayment.

The bank or lender also cannot evict you during the term of the loan, as long as you continue to pay property taxes and keep your home insured and maintained – obligations you already assume as a homeowner.

Reverse mortgages are available to any senior citizen homeowner age 62 or older who owns their home outright, or who has paid off a significant amount of their mortgage. Reverse mortgages are available to single-family homeowners, as well as owners of duplexes and multiplexes, as long as the borrower lives in one of the units. When a mortgage is owed on the property, the proceeds from the reverse mortgage will be used to repay the first mortgage before any funds are released to the homeowner. With your traditional mortgage payments and obligations out of the way, you can focus on enjoying the equity you’ve built in your home.

Reverse mortgage lenders are a great source of information about the lending process and can help determine how much cash you will be able to draw from your home. While the amount of cash will vary by homeowner, generally larger amounts are available for more expensive homes and older homeowners.

Your reverse mortgage lender is also a great source of information about the tax ramifications of your reverse mortgage. Like a home equity loan, the funds you receive from your reverse mortgage are not taxable. And in most cases, your reverse mortgage will not affect Social Security payments or Medicare. In some cases, your reverse mortgage might have an impact on certain types of federal assistance, such as Medicaid or Supplemental Security Income (SSI), and your lender can help you understand these effects.

Just like any other type of mortgage, you will want to shop around to find the lender who is offering the best rate or terms. Reverse mortgages are highly regulated by the U.S. Department of Housing and Urban Development, and mortgage lenders are required to direct potential borrowers to a HUD-approved counselor who is trained in helping homeowners understand all of the ins and outs of the reverse mortgage process.

When meeting with your reverse mortgage counselor, asking the following questions can help ensure your reverse mortgage process moves smoothly:

• Is this an HECM loan? Federally insured reverse mortgages are also called HECM loans, or Home Equity Conversion Mortgages. While there are other types of mortgages, most homeowners opt for federally insured HECM products.

• Are you certified or approved by HUD? All HECM mortgage counselors must receive specific HUD approval in order to be allowed to counsel potential borrowers.

• Should I wait longer before getting a reverse mortgage? Generally, the older you are, the more money you will qualify for. Your counselor or lender can help you determine if it would be wiser for you to wait to obtain your mortgage in order to realize a bigger payout.

• What fees do you charge for reverse mortgage counseling? The average fee for reverse mortgage counseling is about $150, although some counselors may waive their fees for homeowners experiencing financial hardship. In some cases, your counselor may be willing to deduct any fees from the proceeds of your reverse mortgage.

• Do we have to meet in person for counseling? Counselors must offer you a choice between being counseled in person or over the phone. In some cases, telephone counseling may require more than one phone call.

Before contacting a reverse mortgage lender, it is a good idea to do some research on your own about reverse mortgages and their approval process. The Internet is a great source of information about reverse mortgages and their implications. In addition, you can also find reviews of reverse mortgage lenders written by the customers who have worked with the lenders on their own mortgages. By taking your time to do a little research before meeting with your lender, you will be able to ask educated questions and ensure the reverse mortgage option is right for your financial needs.

Karen Zabel is a freelance writer who writes about a variety of topics including a reverse mortgage.

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