5 Questions to Ask When Getting a Reverse Mortgage
If you’ve decided that getting a reverse mortgage is the right move for you, you will probably have many questions both about the process of getting a reverse mortgage and what a reverse mortgage will entail in the future. Bringing up questions to your reverse mortgage lender or in reverse mortgage counseling will ensure that you completely understand your reverse mortgage and won’t be caught off guard when you’ve already signed the documents and committed completely. Here are 5 questions that can get you started and ensure that you are fully equipped to understand your reverse mortgage.
1. How do I find counseling?
The most common type of reverse mortgage is a home equity conversion mortgage, or HECM, which is insured through the Department of Housing and Urban Development. Because of this, the federal government requires that you go through reverse mortgage counseling. The Department of Housing and Urban Development has a list of approved counselors who will be able to guide you through this step, and in many states the process can take place over the phone or online. There are fees for HECM counseling, which can vary depending on your income level and where you live. Your lender who should be a member of NRMLA can help you find out which reverse mortgage counselors are available in your area.
2. How much do I qualify for?
The amount of money you qualify for in a reverse mortgage varies depending on several factors. The factor most talked about is the current federal interest rates. In general, you will be able to get a higher amount of money from a reverse mortgage if you are older and if your home is appraised at a higher value. In addition, your reverse mortgage will be significantly lower if you still have a large mortgage balance that you must pay off.
3. What payment options are there?
There are several options when it comes to accessing the money provided by your reverse mortgage. The three major ways you might get paid are a line of credit, a tenure payment, or a lump sum. A line of credit allows you to access the amount of money you need when you need it, but you will have to plan financially to ensure you don’t hit your payment limit. A tenure payment allows you to receive regular payments every month for the duration of your loan, which is a good option for people who want their reverse mortgage to cover everyday expenses but won’t allow you to withdraw money for sudden expenses. Finally, a lump sum simply gives you the proceeds of your reverse mortgage upfront. There are pros and cons to each of these payment types, and your loan officer will be able to help you decide which to choose.
4. What restrictions are there on withdrawing the money?
If you choose a line of credit rather than tenure or a lump sum, there’s a cap on how much you can take out within the first year. Generally speaking, you will be able to take out anywhere from 40 to 60% of your initial principal limit in that first year.
5. What fees am I expected to pay?
Getting and closing a reverse mortgage has a large number of fees you could potentially run into, and not all of them can be avoided. These potential fees include fees for credit reports, home appraisals, and simply closing the loan itself. You should make sure to talk with your loan officer and ask for exact numbers to ensure that you will have enough cash in hand to pay any fees that crop up.