What to Discuss with Your Reverse Mortgage Counselor
If you’re considering a home equity conversion mortgage (HECM), or reverse mortgage as they’re commonly called, you will most likely need to speak with a licensed housing counselor before your loan is approved. This protection was put in place by the National Housing Act and the FHA in order to prevent predatory lenders from taking advantage of homeowners who may not be well-suited for a reverse mortgage.
So what should you and your reverse mortgage counselor discuss? There are a lot of important factors of a reverse mortgage that need to be taken into consideration. Below is a basic list of key discussion points that you and your housing counselor should cover.
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Points of Discussion
– How the reverse mortgage loan will work. Reverse mortgages work completely differently than traditional home loans. Instead of the borrower making payments to the lender, the lender makes payments to the borrower. In most cases, the loan is not called due until the homeowner no longer uses the home as his/her primary residence. This is just a basic explanation and your housing counselor should be able to go over the process in more detail.
– What are the options for receiving reverse mortgage funds? There are typically three choices: line of credit, monthly installments, or lump sum. In some instances you may be able to select a combination of the three, i.e. receive a partial lump sum and the rest in installments.
Depending on which of those option you choose, you may qualify for an adjustable or fixed interest rate. Your counselor should be able to review both options to see which might work best for you.
– What fees will you be required to pay up front? A few examples may include mortgage insurance, loan origination fees, property inspection fees, and so on.
– How much will you be required to pay in monthly fees? In many cases, reverse mortgage borrowers do not have to pay monthly fees for their reverse mortgage, but you will want to make absolutely sure you know what your financial obligations are before you sign on the dotted line.
– What will happen if you move out of or sell your home? Again, once the borrower no longer uses the home as his/her primary residence, the reverse mortgage will most likely be called due. Have your mortgage counselor go over this scenario with you, even if you don’t expect to move or sell the home. After all, it’s better to be over-prepared than unprepared.
– If someone else is living in the home but they are not on the mortgage, can they stay in the home if you pass away or have to move to a nursing home? Situations like this can sometimes complicate matters for reverse mortgage borrowers and their family members; however, being prepared and educated can prevent any unpleasant surprises down the road.
-Will you be able to realistically afford the property taxes and homeowners insurance? Even though you won’t be held responsible for making mortgage payments, you will still need to maintain your taxes and insurance. If you don’t, the reverse mortgage could be called due and you could face the risk of foreclosure.
These are just the main jumping off points to spark an informational discussion between you and your lender. If you have any other questions that arise during your counselings session, don’t be afraid to speak up.