Questions to ask. Reverse mortgage loans are complex and have many requirements. When you apply for a reverse mortgage loan — and even before you apply — there are a lot of questions to ask.
Here is a guide to some of the most important questions besides the ones you’ll ask about interest rates and fees. The answers will help you understand who you’re working with, how the reverse mortgage loan process works, how long it takes to get the proceeds of the reverse mortgage loan and who should be involved in the information-seeking and decision-making.
When you shop for a reverse mortgage loan, there is an important designation that can help you decide which lender and which loan officer to choose.
“A reverse mortgage loan is a complex financial product, and you need to make sure that who you’re working with is going to really help you understand how it works, and whether it makes sense for you, and if they take a consultative approach to the process with you.
Check to see if they are members of the National Reverse Mortgage Lenders Association, or NRMLA, checking for the lender’s rating with agencies such as the Better Business Bureau and asking what the company’s values are.
But it might ease your mind to ask the question, anyway, when you talk with a loan officer.
“Borrowers still have this perception that if you get a reverse mortgage loan the bank is going to own your home. Not true. It’s no different than a traditional mortgage.”
The lender can explain how a reverse mortgage loan will affect your heirs. It’s a complex issue that is affected by whether you have a co-borrower, whether you are married to someone who is not a co-borrower, and whether the last borrower dies while living in the home or moves out permanently.
If the home is worth less than the reverse mortgage loan balance when the last borrower dies or moves out permanently, the heirs are not on the hook for making up the difference. They can sell the property for fair market value, pay off the loan with the proceeds, and any shortfall is covered by mortgage insurance.
“You look to see what their goal is, and how financially fit they are right now,” she says. Typically, she asks prospective borrowers how their finances will change in the next couple of years. For example, do they plan to buy a car?
With these questions, the loan officer and the borrower can discuss whether it’s a good idea to get a reverse mortgage loan, and if so, if now is the time or if it would be better to wait. They can discuss whether to get a fixed-rate or variable-rate loan, and which type of payout would be best: a lump sum, a line of credit, monthly payments or a hybrid of a line of credit and monthly payments.
When you get a reverse mortgage loan, you are required to maintain the home and pay property taxes and homeowner’s insurance premiums. The lender can set up the reverse mortgage loan with a “set aside” to pay those costs. A set aside performs a similar function as escrow does in a traditional mortgage.
A reverse mortgage loan is more complex than a traditional mortgage because there are various ways to collect the proceeds (lump sum, line of credit, monthly payments or a hybrid of a line of credit and monthly payments). On top of that, you’re required to talk to a certified housing counselor, and a financial assessment is done to make sure you will still have living expense money and be able to pay taxes and insurance.
“A reverse mortgage loan is a complex financial product, and you need to make sure that who you’re working with is going to really help you understand how it works, and whether it makes sense for you.
Are they going to walk me through the reverse mortgage, how it works and whether it makes sense for me? Or are they going to just try to get me to apply? Really strong lenders should have a very specific process they follow that helps consumers understand everything step by step.”
The timing is partially under your control: You’ll have to go through loan counseling, and it is up to you to select the counseling agency and schedule the appointment. The lender will provide you a list of approved housing counseling agencies, or you can search for a counseling agency on HUD’s website.
Undergoing the counseling and getting the certificate does not obligate you to get a reverse mortgage loan.
Should you involve your adult children or heirs into the discussion of whether to get a reverse mortgage? A reputable reverse mortgage lender not only will welcome your heirs to take part, but will support their participation.
“We encourage everybody who is involved in the process to bring in everyone involved.
After they learn the details of how reverse mortgage loans work, adult children seldom try to talk their parents out of getting one.
Call Scott Underwood “Alabama’s Reverse Mortgage Guy” with 12 years experience at (205) 908-2993, or (256) 677-9767 to sit down in person and ask any questions to ask before getting a Reverse Mortgage.