How To Choose A Reverse Mortgage Lender

REVERSE MORTGAGES: WHAT'S YOUR TYPE?

When choosing a reverse mortgage lender, know what type of reverse mortgage you need. Most reverse mortgages are FHA insured Home Equity Conversion Mortgages HECM (pronounced Heck'em). HECM reverse mortgages account for over 90% of reverse mortgage loan fundings.

But there are also a number reverse mortgage products that are offered to low-income homeowners by state and local governments or non-profit agencies. If your home is in an area that offers such a product you would have to apply for your loan with the lending agency. For example, if your city has a local government program for a reverse mortgage specifically to cover property taxes or maintenance, you would have to apply for that loan with the government agency offering the product.

Finally, there are private mortgage lenders, which may lend at higher amounts or higher loan-to-values. These are less regulated than HECMs and if you need a large private loan you should scrutinize the lender throroughly. Counseling is also strongly advised before you purchase one of these loans--it can help you understand the disclosures.

Since most reverse mortgage are HECMs, it is very likely you will have the chance to pick and choose between reverse mortgage lenders. Below are several tips on how to find a good lender and the main topics you will need to question.

FINDING A GOOD LENDER

• National Reverse Mortgage Lenders Association NRMLA provide education and serve as advocates in the reverse mortgage lending industry. You might want to consider only lenders who are members of NRMLA and follow their published Code of Ethics.
• Start online to see the lenders available in your area. Online searching is an easy and efficient way to get your search going. Click here to find reverse mortgage lenders.
• American Association of Retired Persons AARP represents seniors on many issues including reverse mortgage lenders. Their Website offers advice on choosing a lender.
• Get counseling. In fact, HUD requires that borrowers obtain counseling via phone or in person before being allowed to take out a reverse mortgage. Part of this counseling should include how to evaluate lenders and understand disclosures.

IMPORTANT QUESTIONS

• The closing costs associated with a reverse mortgage will vary from lender to lender. You can ask for cost estimates upfront to compare costs side by side. Lenders have some control over the interest rate, origination fee, and lender's fees. Ask for these disclosure forms--The Good Faith Estimate (GFE) and Truth-in-Lending (TIL). In addition, the TIL contains a special section only for reverse mortgages. It's called a Total Annual Loan Cost, or TALC.This form helps understand the costs because unlike traditional loans, you don't know ahead of time how long you will have the loan or what the final balance will be.
• Customer service is an important factor in making your decision. If you receive three cost estimates from three different reverse mortgage lenders, and they are each within a few hundred dollars of each other, consider who served you best. Does the lender return your calls and emails promptly? Are your questions answered with specifics or does it seem that the lender is dancing around your questions? Your comfort level with your lender is very important.
• Finally, consider the interest rate and terms being offered. Since you will not be making monthly payments on your new reverse mortgage, the interest will be accruing for the life of the loan. Most HECMs come with variable interest rates, so you want to look at the index that the rate is based on, add the margin (lender's profit), and see what your rate is today. Then, ask what the rate could go to under a best and a worst-case scenario. Other choices include fixed-rate options, but these rates are generally higher. A good lender will be able to give you the pros and cons of each choice and help you make a comfortable decision.