You’ve made the decision to pursue a reverse mortgage and now you’re meeting with a loan officer for the first time. Though you may understand the basics of a reverse mortgage, there are certain questions you may want to bring with for your first meeting to clarify some of the details that could potentially catch you off guard down the road.
Here are a few questions to address in your first meeting with your reverse mortgage loan officer.
How do I get counseling?
Before you can apply for your home equity conversion mortgage (HECM), the U.S. Department of Housing and Urban Development requires you to go through HECM counseling. There are HUD-approved counseling agencies throughout the country where you can receive the counseling and it’s often offered over the phone, although some states require it to take place in person.
HECM counseling fees may vary depending on several factors, but may be waived based on your income level. Your loan officer should be able to provide you with a list of HECM counselors but cannot make any specific recommendations.
How much can I qualify for?
There a number of factors that will be used to determine how much you can qualify for in a reverse mortgage. The major items that are looked at are your age, your home value and current interest rates.
One thing to keep in mind is that generally, you can qualify for a higher amount if you are older and have more equity in your home. If you still have a significant mortgage balance remaining, the proceeds for a reverse mortgage may not be as high. Your loan officer can work with you to help assess your situation.
What are my payment options?
There are pros and cons for each payment option you can choose, but the first thing to ask yourself is how much you really need the funds. Are you taking out a reverse mortgage to have as a backup plan or will you need the funds right away?
Your options include a line of credit, a tenure payment, a term payment, lump-sum or a combination. A line of credit option allows you to draw on your loan at the times and amounts that you choose (there is a cap limit for your first year though, more on that later).
A tenure payment would allow you to receive payments for the entire length of your loan. The term option is similar, but would allow you to receive payments for a set time period.
The fixed-rate, lump-sum payment option allows you to receive the proceeds upfront. However, there are first-year withdrawal limits (see: “Are there any restrictions on the money once the loan is closed?”).
Clarify with your loan officer what each option would mean for your specific situation.
Are there any restrictions on the money once the loan is closed?
As of October 1, 2013, there is a cap on the amount you can take out from your reverse mortgage proceeds in the first year. Once you figure out how much you qualify for, generally, you can take out up to 60% of your initial principal limit in the first year.
But if you don’t absolutely need the money right away, taking another payment option may be more beneficial.
Will kind of fees can I expect to pay?
There are a number of potential fees that you may be required to pay upon closing your reverse mortgage loan, so be sure to ask your loan officer what exactly those fees are upfront to avoid being blindsided.
Some of the potential fees could include payments for closing the loan, mortgage insurance premiums (MIP), HECM counseling, a home appraisal, a credit report, document preparation, lender’s title insurance and notary services. Be sure to ask for exact numbers, when possible.
What happens if I die?
In the event that you pass away while you still have the loan out, your heirs would be responsible for repaying the loan. This typically is done through the sale of the home, but they will not be on the hook in the event that the loan balance exceeds the home value at the time of sale.
Asking all of these questions to your loan officer in your first meeting could save you a lot of potential stress down the road.