Educational Consumer Tips
Better Business Bureau
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 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).
Better Business Bureau (BBB) advices consumers to use caution if approached with the opportunity to obtain a reverse mortgage, taking the time to understand the requirements, consider all the factors involved, and learn what free resources are available to help them 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 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.
- 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 interest rate.
- Understand the repayment terms. A reverse mortgage loan must be repaid 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.
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