When choosing a Reverse Mortgage, it is important to not that there are several things you need to be aware of and here are the top 7 mistakes to avoid when shopping for a Reverse Mortgage.
1. Using a Forward Loan Officer To Originate Your Reverse Mortgage
This is probably the most common mistake people make. You want to work with someone who specializes exclusively in reverse mortgages. A lot of the big reverse mortgage lenders solicit forward loan officers to do reverse mortgaegs. They say they will help these inexperienced LO’s, but these loans take a lot more time than a normal forward mortgage and a lot of forward LO’s don’t know what they’re getting themselves in for.
For example, forward loans don’t have to verify a 2-year payment history of the home owners association dues, but RM’s do. This requirement alone can add days to the process because HOAs are notorious for changing management companies so the loan originator may need to call two or three different management companies to piece together a two-year payment history.
2. Choosing An Inexperienced Reverse Mortgage Loan Officer.
This mistake is almost as bad as the first one. I would not recommend working with an LO that has closed less than 20 loans. For most reverse mortgage LO’s during their first year, they’d be lucky to close 12 loans, let alone 20. I know this sounds like it might be mean because everyone needs to start somewhere, but you don’t want to be someone’s Guinee pig. I’m not perfect, but I’ve probably closed over 800 RM’s over the last 16 years and have seen most scenarios. Mobile homes, homes with acreage, homes in trusts, POA’s etc..
Also, because this business has a long sales cycle. Loan officers talk with a lot of people and it takes some people months or even years to decide to move forward with a reverse mortgage. For this reason, there is a lot of turnover with new reverse mortgage LO’s. If you work with a new LO, will they still be around a year from now if you have a question? What about five years from now?
3. Deciding On A Reverse Mortgage Too Soon After The Death Of A Spouse
Professional counselors say you should not make any big decisions within the first 12 months after losing a spouse. Hopefully, you have a solid family and can rely on them for help. Even if you don’t have family nearby and you’ve got a plan in place that includes a will and life insurance that will help cover expenses during the first year after losing a spouse.
Unfortunately, if you didn’t plan, you may need to have access to your equity a lot sooner than 12 months after your spouse has passed away. This just amplifies the first two mistakes that you must avoid. If you must get a RM within the first year after losing a spouse, you need to find someone who specializes in reverse mortgages and who has the experience to help you through this difficult time. Also, I think it is extremely important to find that person locally.
4. Not Using A Local Reverse Mortgage Specialist
A reverse mortgage is not a loan that you can get over the phone or the internet like some companies like to advertise. This might work if you know what you’re doing and getting a forward mortgage, but reverse mortgages are a different beast. It is very important that you work with someone local who will still be around 2, 3, 10 years from now if you have any questions down the road.
It’s always best to be able to meet the loan officer in person and feel comfortable with whomever you are working with.
5. Signing Forms Without Completely Understanding Them
This may sound like common sense, but when you’re going over the application package and are on page 40, you may just want to call “uncle” and give up. This is where working with a local RM specialist is so important because whomever you are working with should be willing to answer any questions you have, even if it’s the 3’rd or 4th time you’ve asked it. The LO should try to explain it a different way that may help you understand it better.
But in that instance, it’s easy to be embarrassed because you know it’s been explained before but it just isn’t sinking in. You still need to push the LO to try to explain it so you can understand.
6. Signing The Application Before Doing The Required Counseling
Some lenders, especially out of state lenders, will send you the application before you’ve completed the counseling. Reverse mortgages require that
you talk with an independent 3rd party before the lender can order the appraisal. I say you have to do the counseling before you sign any application
forms. In my mind, that’s the best way to do business.
The reason you are required to talk with a reverse mortgage counselor is because the LO get’s paid when you close the reverse mortgage, but the counselor has no interest in you getting the loan or not. They are a “disinterested 3rd party”. Also, you should be the one choosing which counselor you talk to. In Colorado, you have the choice to do the counseling in person or over the phone. Don’t let a lender ever tell you that they will have the counselor call you.
The problem in signing the application before you do the counseling is that the counselor may raise questions that you didn’t know you should ask the lender. You don’t know what you don’t know. Like we discussed in #5, you want to make sure you understand the forms completely before you sign them.
7. Not Shopping
Any time you are making a major purchase, you should shop and get at least two to three quotes. Don’t go overboard and get 5 or 6 quotes. I’ve talked with people getting 5, 6 even 7 quotes and most of the time, I find these people are professional shoppers. They just confuse themselves.
You want to try to get two to three quotes and try to get all of them within one week if possible. When deciding who to go with you want the best rates and costs and most money, but you also want to make sure you choose an experienced local reverse mortgage specialist to work with as well.