A reverse mortgage allows you to convert your home equity into a cash loan, provided you’re over the age of 62. It can help you balance out your income during retirement, make it easier to pay bills, or even help you downsize to a new home. The reverse mortgage industry has a bad reputation, though, and looking for a credible lender can feel like a daunting task. Despite the introduction of new regulations to keep the industry in line, there are still plenty of scams, lots of bad advertising, and a surprising amount of poor counseling out there.
Fortunately, there are still plenty of good reverse mortgage lenders out there. The best reverse mortgage lenders — like my top overall pick, One Reverse Mortgage — don’t engage in any shady advertising or business practices, while also providing a wide range of reverse mortgage options, in-depth information about each of those options, and helpful representatives to assist you when you need them.
The Simple Dollar’s Top Picks for Best Reverse Mortgage Lenders
- Best Overall: One Reverse Mortgage, a division of Quicken Loans
- For Homeowners Who Want Payments Over Time: Longbridge Financial
- For Homeowners Who Want to Downsize into a New Home: Reverse Mortgage Funding
- Honorable Mentions: HomeBridge Financial Services and FBC Mortgage
How I Found the Best Reverse Mortgage Lenders
First, I looked for lenders with a wide reach.
There are dozens, if not hundreds of local lenders who may be able to offer you great service, but I didn’t want to get a nationwide audience excited about a lender they couldn’t use, so I focused only on lenders who operate in at least 40 states. I found 86 nationwide reverse mortgage lenders from which to choose the top five.
I cut out the middlemen.
Lead-generation websites are great if you’re looking for a bunch of fast quotes, but they can’t offer you much information about the level of service or reliability you’ll get from the lenders they recommend. I want you to know exactly what you’re getting into, so I nixed any company that wasn’t a direct lender.
I also looked into each lender’s reputation.
I looked for lenders who did not have multiple regulatory actions or consistent complaints made against them. A mistake here or there doesn’t necessarily raise a red flag. Maybe someone forgot to sign the paperwork, or something was filled out incorrectly. But more than a couple incidents could spell a pattern, so I nixed any lenders who had recurring problems. All of my top picks are also members of the National Reverse Mortgage Lenders Association, which ensures that all of its members adhere to strict ethical guidelines in order to be a part of the organization.
Then I started applying for reverse mortgages myself.
Since most of us are going to start our search online, the best reverse mortgage lenders need to have a high-quality, professional website where you can quickly learn what you need, including:
- Accurate and easy-to-understand educational info to help you get started with a reverse mortgage.
- Helpful online tools, like interest and payment calculators.
- An online pre-qualification form that is easy to use.
- Easy access to reps through features like live chat, so you can get ahold of someone quickly when you need to.
- Helpful information on counseling and payment options readily available online, so you can learn what you need when you don’t want to talk to someone else.
You’ll also likely spend time talking to your reverse mortgage loan officer over the phone or in person. Since you’ll have to go through it, I did, too. I called all of the top lenders; hammered the loan officers with questions; and judged each lender on response time, knowledge, and friendliness.
Also, there’s one final step I couldn’t test in the reverse mortgage application process for you: Before you can finalize a reverse mortgage, you’ll have to take a counseling course with a Department of Housing and Urban Development (HUD)-approved counselor. This step is required by the Feds to help you understand all of your options, and to hopefully help you make a sound decision.
The Best Reverse Mortgage Lenders
Best Overall
When it comes to all-around lender quality, One Reverse Mortgage was the clear winner. A division of Quicken Loans, One Reverse Mortgage offered a well-rounded experience. The company website was helpful, with a decent knowledge center and an easy-to-use online pre-qualification app. After I applied online, the lender called me first, and answered all of my questions honestly and thoroughly. One Reverse Mortgage also offers a range of payment options, making it a good fit for most situations.
For Homeowners Who Want Payments Over Time
Longbridge Financial’s website has a clear layout with everything at your fingertips. Its knowledge center was helpful and straightforward, and I left the website feeling like I knew more about reverse mortgages than when I started. It was also the only lender in my top picks to offer a live chat function. Longbridge Financial offers a variety of reverse mortgage products, but it put a focus on long-term payouts (with helpful website information and knowledgeable reps to back it up), making it the clear winner in terms of online functionality and a good choice if you’re looking to receive payments over time.
For Homeowners Who Want to Downsize into a New Home
Reverse Mortgage Funding immediately answered my call when I had questions, and I was able to speak directly with a knowledgeable, helpful rep within five minutes. The loan officer kept pace with my laundry list of questions — everything from getting the required HUD counseling to closing costs — and left me feeling confident the company knew what it was doing. If you want to do business over the phone instead of online, Reverse Mortgage Funding is worth checking out, but the company also won the top pick spot for people looking to move into a smaller home. The lender has special programs geared toward helping seniors use a reverse mortgage to downsize into a new place — perfect if you want the benefits of a reverse mortgage, but aren’t sure if you want to stay in your current home.
Honorable Mentions
HomeBridge Financial Services didn’t offer as much information online as One Reverse Mortgage or Longbridge Financial, but it has an easy-to-navigate website that will help you get started. The loan officer I spoke to was friendly, fast, and didn’t make me feel rushed when I kept asking questions.
FBC Mortgage had a direct, no-frills website, but does offer contact information for loan officers right on the reverse mortgage page, so you can skip the 1-800 number. I tried it and reached my friendly loan officer, Al, within minutes. Al was more than happy to discuss my options with me. FBC Mortgage offers a wide range of reverse mortgages, both in lump sum and term payments, making it an all-around good reverse mortgage lender if you prefer to do business with an individual, rather than a machine.
Note: You may notice that the big names in banking you recognize are conspicuously absent from this list. There’s a reason: Most big-name lenders have pulled out of the reverse mortgage business in recent years. (Both Wells Fargo and Bank of America ended reverse mortgage services in 2011, for example.) But the lack of name recognition shouldn’t raise a red flag. These lenders still originate a large volume of successful loans. For example, Quicken Loans (the parent company of my top pick One Reverse Mortgage) is the largest online mortgage lender and second largest mortgage lender overall in the US.
How Does a Reverse Mortgage Work?
A reverse mortgage allows you to convert your home equity into a cash loan. You never have to make a payment, and you don’t have to have income to qualify. You will have to pay closing costs and setup fees (just like with a regular mortgage), and you’ll likely have to pay off any remaining mortgage you have before you start receiving payments, but those costs can be rolled in to your reverse mortgage, meaning you may not have to pay much or anything up front. And then, unlike your regular mortgage, you won’t have to make a payment every month — instead, you’ll get a payment, which deducts from the pre-existing equity you already have in your home.
There are some basic requirements.
Before we go further, you should know not everyone qualifies for a reverse mortgage. To be a candidate you must:
- Be at least 62-years-old.
- Be currently living in your home year-round (vacation homes don’t qualify).
- Not have any outstanding federal liens (including taxes).
If you don’t meet the minimum qualifications, you may still have some other options to get cash from your home (I’ll talk about those a bit later). If you do meet the qualifications, you should know reverse mortgages work a bit differently than a traditional mortgage or loan.
Reverse mortgages come in four different forms.
Most reverse mortgages are known as HECMs, or Home Equity Conversion Mortgages. HECMs are insured by the US Department of Housing and Urban Development and represent 90 percent or more of all reverse mortgages, according to Casey Fleming, a mortgage advisor and author of The Loan Guide: How to Get the Best Possible Mortgage. All of my top picks offer HECMs.
Within HECMs there are four ‘types’ of reverse mortgages:
- Lump sum: You’ll receive one lump sum to pay off your home and then spend the remainder as you wish.
- Monthly annuity for life: A monthly payment for an undetermined amount of time.
- Monthly annuity term: A monthly payment for a set amount of time.
- Equity line: A line of credit you can draw against as needed to cover expenses.
And, remember: It’s a loan, not a grant.
While the lender will pay you initially, reverse mortgages are a loan, not a grant. If the homeowner moves, sells the home, or passes away, the balance on the reverse mortgage becomes due — typically paid off by selling the home.
What About Reverse Mortgage Scams?
Scams aren’t as common as they once were – regulations have tightened over the years to make it harder for would-be scammers – but it does still happen in some areas, especially when it comes to advertising. False or misleading information can happen in any lending situation, and it helps to be prepared. In fact, a recent study by the Consumer Financial Protection Bureau tested 97 advertisements for reverse mortgages. They found incomplete, misleading, or missing information in nearly all of them. That doesn’t mean you’re going to run into a scam, but it does mean you shouldn’t rely on advertising alone.
Comparison Shop: Always get quotes from multiple lenders. Since you’re not making monthly payments — the lender is paying you — it is easy to overlook this step, but you shouldn’t. Once your loan term is up — or you sell your home — you’ll have to essentially pay the lender back, plus interest, and a few fractions of a percentage point can make a big difference over the course of a loan. According to Fleming, “Reverse mortgages are the only product left where a loan officer can earn a higher commission by selling you a higher interest rate. Since seniors don’t make payments, they rarely comparison shop and so could easily end up with a much higher interest rate than necessary.”
Make sure the lender you’re considering is reputable: There are two easy ways to do this. First, check the lender out with the Nationwide Mortgage License System and Registry. The NMLS will tell you if the lender has any serious infractions. You can also see if it’s a member of the National Reverse Mortgage Lenders Association. (All of my top picks already passed these tests.)
Work with your HUD counselor: The required counseling session is a good time to address any specific questions or concerns you have — like what to expect for closing costs, or what payment option would work best for your schedule. Don’t be shy: If you’re worried or wondering, bring it up!
Read all the disclosures: Reverse mortgage products have a unique language and a lot of paperwork to get through, but it’s important that you read all of it, and understand what it says. And don’t get discouraged if you don’t understand it all (most of us don’t). “It might be helpful to ask a trusted family member or financial advisor for help with reading them,” Fleming says. Not sure who to ask? Your HUD counselor may be able to recommend someone.
And, remember: Not all reverse mortgages are bad news. Yes, there can be scams and false information floating around, but that doesn’t mean all reverse mortgages are inherently evil. Getting a reverse mortgage can be a responsible way to plan for retirement if done correctly.
Alternative options
Not sure if a reverse mortgage is right for you? It won’t work for everyone in every situation, so it’s important to consider alternatives. Consider these:
Refinance your mortgage. If your monthly mortgage payment is dragging down your fixed income, you may be able to refinance into a cheaper monthly payment and free up some cash.
Take out a HELOC. A home equity line of credit will give you a line of credit you can draw from whenever you need to make home improvements or have an emergency expense. However, once you draw out, you will have to make payments later to repay the loan.
Take out a home equity loan. A home equity loan will let you borrow against the equity in your house to cover unexpected expenses.
Downsize. It isn’t easy to think about, but downsizing has its benefits. For one, you could make cash from the sale of your home to help cover your daily expenses. And you may end up enjoying having a smaller home with less maintenance, which will provide you with more freedom.
The Bottom Line
Reverse mortgages aren’t for everyone, but as long as you choose a reputable lender and read all the fine print, a reverse mortgage can give you more financial freedom during your golden years.
The post Best Reverse Mortgage Lenders for 2016 appeared first on The Simple Dollar.
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