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How Do I Get a Reverse Mortgage?

How Do I Get a Reverse Mortgage?

July 21, 2003

�I am running short of money and friends tell me that I should take a reverse mortgage, but the thought of a complicated transaction involving my house just terrifies me. It would help a lot if you would lay out the steps in 1, 2 3 form?�

 With a reverse mortgage, it is as important to know what not to do as what to do.  So let me start with that first.

Don�t respond to any uninvited solicitations.  There are freeloaders about, some calling themselves estate planners, who would like to be paid for directing you to a lender, or to an insurance company selling annuities.  You don�t need them, just follow the steps described later.

Don�t procrastinate. Procrastinating on a reverse mortgage is easy because, unlike the situation when you took your first forward mortgage, you already have shelter and the children are grown and out. Fight the tendency by making an informed decision, which could be that a reverse mortgage is not for you, or that it is for you but that it would be better to wait and allow the amount you can draw to rise. 

Determine whether your state or locality has a program for property improvement or for the payment of property taxes that can meet your needs.  These single purpose programs are invariably good deals, but they usually have eligibility criteria that limit their availability.  A good place to start looking for them is the directory of �homes and communities organized by state� on www.hud.gov.

Educate yourself on reverse mortgages.  Call AARP at 800 434 3410 for a free copy of Home Made Money, an excellent pamphlet on reverse mortgages.  You can also order it online at www.aarp.org/revmort.  Other good online sources are www.reverse.org, and http://www.mtgprofessor.com/reverse_mortgages.htm. 

Assuming you are eligible, determine how much money you can draw and what it will cost. You do that using an on-line calculator at one of the following web sites: www.rmaarp.com, www.revmort.com,  www.nrmla.org, or www.ffsenior.com.  The first 3 cover the FHA Home Equity Conversion Mortgage (HECM), and Fanny Mae�s Home Keeper (HK) mortgage.  The last one covers those plus the Financial Freedom Cash Account (CA) mortgage, which caters to high-priced homes (over $400,000).  Based on these results, decide whether you want a reverse mortgage now, and if so, which of the 3 types. 

Formulate a preliminary plan of how you will draw funds.  Will you take a line of credit, a monthly payment, or some combination?  Also, formulate questions to be put to a counselor.

Get counseled.  Counseling by a HUD-approved counseling agency is mandatory, regardless of what kind of loan you select so use it as part of your education.  You can find a counselor on your own by going to http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm, clicking on your state, and selecting from among the agencies that list �HECM counseling�.

 You can also find a counselor through AARP.  When you order its free consumer guide, AARP sends you information on its counseling referral system.  AARP encourages you to read the booklet before requesting counseling. If there is a possibility that you may select a Home Keeper or Cash Account mortgage, find your counselor through AARP.

Select a lender:  Select a lender who belongs to the National Reverse Mortgage Lenders Association (NRMLA).  These lenders subscribe to a code of conduct that prohibits deceptive or sharp practices.  The code, as well as a list of members by state, is available on NRMLA�s web site (www.reversemortgage.org ).  Next to each NRMLA members is a notation of the types of loans they do.  All do HECMs.  Most do HECMs and HKs.  A smaller number do CAs.

Copyright Jack Guttentag 2003  


Jack Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Visit the Mortgage Professor's web site for more answers to commonly asked questions.

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