A reverse mortgage can add stability to your retirement years when used correctly. Selecting the right reverse mortgage lender to originate your loan is essential. We created this guide to provide insight into how HECM lenders are rated and how reviews are collected across the web (independent and sponsored review sites).

5 helpful tips when selecting a reverse mortgage lender:

#1.  Get your reverse mortgage from a lender looking out for YOUR best interests.

Many people are convinced that they need one or two specific things, and they miss other points that may make a big difference in the overall benefit or cost of the loan. We have had borrowers who look at the expense of the appraisal fee and will go to one lender over another because the appraisal fee is $100 lower.

Not realizing they receive thousands less due to a higher rate or that the higher rate will accrue thousands of dollars more interest over the life of the loan. This is just one example. You need to look at the totality of the transaction and not allow yourself to be fixated on just one small factor.

#2.  Beware of fake reviews.

Read the reviews of actual customers online. Do not rely solely on online sites that generate leads for companies; their reviews can be bought and sold, making them less trustworthy. Go to honest third parties like the BBB (Better Business Bureau) or Google Ratings, where ratings are consumer-generated and cannot be influenced by the lender.

Look for problem issues that are constant and recurring, and you may want to steer clear of those originators. Understand your needs. This loan is all about you, not the lender. The key to a successful reverse mortgage is getting the right loan the first time, and the right one addresses your specific circumstances. 

What works for some can be a terrible idea for others. At All Reverse Mortgage, Inc., we prefer to give you enough information to make an informed decision – not sell you a loan program that doesn’t fit your needs.

#3.  Compare the loan terms, including but not limited to fees.

Lending laws do not allow originators to pad any closing costs. Appraisals, title fees, credit, etc., can only charge what those companies charge. Originators cannot, by law, add anything to those fees. Many borrowers look only at the fees on an adjustable-rate loan. 

You should also look at the margin if you are looking at an adjustable-rate loan, as a higher margin can cost you thousands and tens of thousands of dollars in interest over the life of the loan, just as a higher interest rate can on a fixed-rate loan. 

Not only that, but the higher margin raises the effective rate, which lowers the principal limit (loan amount) the borrower will receive. The effect of the higher margin is you receive less money in the loan, and you pay significantly more interest over the life of the loan.

Do not overlook the margin!

Since the UFMIP is based on 2.0% of the appraised value of the home to a current maximum of $1,089,300, the UFMIP can go as high as $21,786. With an increased interest rate option, we can absorb all or a portion of this upfront insurance, saving you thousands. The higher margin and lower fee sometimes cause you to receive less money overall.

That is why comparing and seeing which is a better option for you is essential.

#4.  Make sure your reverse mortgage provider is HUD approved.

To check if your lender is HUD-approved, visit HUD’s Lender List Search. 

Start your search by entering your lender name, and before the search, checkmark “Reverse Mortgages through FHA’s Home Equity Conversion Mortgages (HECM).”

#5.  Avoid companies with appraisal interests.

We will never use an Appraisal Management Company (AMC) owned in whole or part by just one lender. Lender-owned AMCs do not cooperate with lenders other than the one who owns them. Meaning that borrowers are trapped in their original lender and cannot close their loan if another lender can give the borrowers a better deal and the borrower later wants to transfer to another lender.

This creates a conflict that prevents borrowers from being able to transfer the appraisal, and some banks routinely follow this procedure, locking borrowers into loans they later cannot change. It’s a loophole in HUD’s intentions. Still, there is currently no way to get the AMC to cooperate. They say they cannot work with anyone but the lender who placed the order (who conveniently enough owns them).

When this happens, borrowers have one of two choices. Order a new appraisal at an additional cost or stay with their original lender, even though they might have found a loan with a lifetime cost of thousands of dollars less. There is a solution, though. It would be best if you did your homework. Get solid quotes and compare before you begin. Then verify the credentials of the originator and the company.

If you have done all the comparison shopping in advance, you won’t have that terrible feeling later if things get rocky. You don’t want to find out after the fact that you didn’t have the best circumstances from the start, and now the lender is making it almost impossible for you to move your loan.

Top Lender FAQs

Summary: 

• Reverse mortgage lenders market to consumers through TV commercials, the Internet, direct mail, and financial planning communities.
• Choose your lender based on their independent reviews and best offers, as lending institutions set their interest rates and fees. (Contrary to belief, the government does not control the rate, margin, or origination fee.)
• Companies that are HUD Approved are direct lenders and will usually save you time and money, as working with a broker means you are working through a “middleman” and can expect some higher costs associated with your reverse mortgage loan.
• Ensure the lender you select is a member of NRMLA and abides by its code of ethics.
• Don’t fall for high-pressure sales tactics. 
• All reverse mortgages require independent counseling. Be sure to review and consider alternative options before committing.

Inactive Lenders (Info for past customers)

ARLO recommends these helpful resources: 

• • Search for a lender by State or City 
  • Search for lenders by NRMLA – (National Reverse Mortgage Lenders Association)