Educational Consumer Tips
Author: Better Business Bureau
Mortgage professionals are reporting a trend in the housing industry targeting senior citizens and consumers involving home equity conversion mortgages (HECMs), also known as reverse mortgages.
A reverse mortgage allows homeowners to convert part of the equity in a home to cash without having to sell the property. Due to the attractiveness of these loans, some senior citizens and consumers are being charged excessive up-front fees for services that are generally available free of charge or at a very low cost through the Department of Housing and Urban Development (HUD).
BBB advices consumers use caution if approached with the opportunity to obtain a reverse mortgage, taking the time to understand the requirements, consider the factors involved, and learn what free resources are available to make an informed decision.
BBB provides the following tips when considering a reverse mortgage:
- Know the basic requirements. To apply for a reverse mortgage, a senior must be 62 years or older and have equity in the home. The home must be the primary residence and remain in good condition. The loan process can't be initiated until the senior receives counseling from a HECM counselor.
- Consult an HECM counselor. An HECM counselor will help answer questions regarding eligibility, financial implications and other alternatives. The Fair Housing Association (FHA) does not recommend using any service charging a fee for referring a borrower to an FHA lender as FHA provides all the information free of charge and HECM housing counselors are available free or at a very low cost. For a list of approved counseling agencies, click here or call 800-569-4287.
- Involve heirs in the decision-making. Because a reverse mortgage affects the assets of the borrower in case of death, involving heirs will avoid future misunderstandings.
- Make sure a reverse mortgage suits your needs. Determine whether it is practical to remain in the home for 5-10 years to make the reverse
mortgage economical. Take into consideration future health care needs as well as safety and ease of use of the home.
- Consider all the costs associated with obtaining a reverse mortgage. Be prepared to pay for some of the fees involved in the processing of a reverse mortgage loan, which can include an origination fee, closing costs, a mortgage insurance premium, a servicing fee, and the
- Understand the repayment terms. A reverse mortgage loan must berepaid in full when the owner dies or sells the home. Other conditions that affect loan repayment include failure to pay property taxes or hazard insurance, allowing the property to deteriorate, and if the borrower permanently moves, has a new primary residence, or fails to live in the home for 12 consecutive months.
For a full list of reverse mortgage requirements, contact the U.S. Department of Housing and Urban Development at 1.800.333.4636.