Mortgage professionals in the Treasure Valley see a trend in the housing industry as senior citizens continue to check the 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 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) advises consumers to use caution if approached with the opportunity to get 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.
“It is unfortunate that dishonest people continue to take advantage of senior citizens in our community,” said Beve Bryant, Outreach Coordinator. “For this reason, it is important that we reach out and educate them about the many resources available and encourage family members to get involved.”
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 stay in good condition. The loan process can’t be initiated until the senior receives counseling from a HECM counselor.
· Consult a HECM counselor. A HECM counselor will help answer questions about 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 a 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 stay 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 ready 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.