5 Simple but Effective Reverse Mortgage Tips

By Daniel Duffield

With the baby boomer generation retiring, reverse mortgages have become increasingly popular and many speculate that this loan program will be as popular as the commonplace IRA. However, with a fundamentally unique loan program such as the reverse mortgage, many homeowners misunderstand the function and consequences of the reverse mortgage; while tremendously beneficial in some circumstances, borrowers who misuse the program can find it extraordinarily expensive. To address this confusion, here are 5 reverse mortgage tips to help unfamiliar borrowers to understand and navigate the reverse mortgage process with minimal stress and cost:

   

1.       Do the research.

As previously indicated, one of the major sources of distress for reverse mortgage borrowers arises from the confusion caused by the unique facets of the program. Before making a decision, learn more about the reverse mortgages, in terms of the requirements, advantages and disadvantages, consequences, and alternatives. For instance, seniors considering a reverse mortgage should know how this will affect their inheritance and what their heirs will have to do once the mortgage debt becomes due. Without a full understanding of the program, homeowners cannot make an educated decision and may end up making a poor choice; after all, reverse mortgages are equally beneficial for everyone. Accordingly, before making any commitments always do the research.

2.       Discuss with family.

While securing a reverse mortgage is a significant decision for a borrower, doing so can also have implications for family members, especially any heirs who will inherit the property. As such, senior homeowners considering a reverse mortgage should discuss this with family for collective consideration, since the heirs will assume responsibility for repaying the loan once the borrower passes away. Although they cannot be held responsible for any additional debt caused by a decline in home values, managing the property is still a considerable responsibility that heirs will need to be prepared for.

3.       Utilize counseling.

In the process of obtaining a reverse mortgage, borrowers must attend a mandatory reverse mortgage counseling session with a qualified HUD counselor. This meeting is a tremendous resource, as the counselor will be able to answer any pertinent reverse mortgage questions and clear up any confusion regarding the program. Rather than begrudgingly attend, borrowers should utilize this counseling session and make full use of the available information. Furthermore, this counselor can help borrowers determine whether or not the reverse mortgage program is the optimal decision given the circumstances and will provide alternatives for those who would not benefit from the program.

4.       Determine the optimal type.

After determining the reverse mortgage as the best option, borrowers will need to consider the types of reverse mortgages; borrowers have three options: the standard Home Equity Conversion Mortgage (HECM), the HECM Saver, and the HECM for purchase. The standard HECM reverse mortgage provides borrowers with access to greater amounts of equity and funding but costs more to acquire. In contrast, the HECM Saver costs less than the traditional HECM reverse mortgage, but borrowers will not be able to access as much money through this option. Finally, borrowers who would like to purchase a home and obtain a reverse mortgage can secure a HECM Purchase, which allows borrowers to buy a property and tap the equity immediately.

5.       Gather documentation.

 Once a borrower has thoroughly considered a reverse mortgage and fully understands the program, he or she should prepare all of the necessary documentation before meeting with a lender. This generally includes loan documents for the original mortgage, as well as financial statements. Typically, borrowers will receive a packet from the lender or counseling agency prior to the counseling session, which will provide details of the necessary documents and any additional information.

About Me
Lead Content Developer of Lender411. Please add my Google profile to your circles.