1. Getting a Reverse Mortgage for the Purpose of a Short Term Fix.
The cost of a reverse mortgage would normally make it a mistake to use for a short term fix. While there are definitely times to use it short term, think of a reverse mortgage as something you are going to use for the next 10+ years. In the event that you are in some serious financial dire straights, like possible foreclosure or in need of repairs to make your home habitable, it may make sense to do a short term reverse Mortgage. Being aware of the fees associated with the loan will help you determine whether or not you are making the smart choice. Of course, a trusted loan officer will be able to guide you, but ultimately, you need to be the one making the decision.
2. You Could Lose Government Benefits After Closing Your Reverse Loan.
Not really because of getting a Reverse Loan, but because of the impact it can have on your finances. The program we are specifically speaking of is Medicaid. If you have too much money in reserve, you can be disqualified. The way this can happen is by taking a lump sum of money that is needed for something like home repairs, but you put in your bank account first. If you don't spend it when the new month rolls around, you could cost your Medicaid eligibility. Another way is if you take a monthly allotment and don't spend it all each month. This will be a savings that long term could equal enough money in your bank account to disqualify you.
3. Using an Inexperienced Loan Officer for Your Reverse Loan.
Can you believe that a loan officer at a bank doesn't need to be licensed? There is no state licensing or education required on the proper way to handle loans. Just about anyone can qualify to be a loan officer in a bank. If you just walk in and say, "I would like to be a loan officer", you will probably get a desk and a name badge. Call it biased if you like, but I prefer the idea of talking to a trained professional and would like to see a license showing that they can be held responsible. Because the commission is usually pretty good, a loan officer new to the business will sometimes try to make as much money as possible on your loan. Since the terms are all pretty much the same wherever you go, you should really interview your loan officer and test their knowledge. Make sure that you are comfortable with them, as you are trusting your future finances to them.
4. Being Afraid of a Reverse Mortgage, So You Don't Do One.
There are so many people afraid of a reverse mortgage for no other reason than they just don't know who to trust. The facts seem too good to be true, so they shy away. What I would like to show is how to know what is true and how to make a smart decision. First off, there are too many "experts" in a field that they know nothing about. The amount of disinformation is almost overwhelming, even for someone who knows the truth. I have seen financial planners who will state that you lose your home when you do a reverse mortgage. I have heard several people say that you will leave excessive debt to your heirs. So here is a little advice that may soothe your concerns: First, try to find a loan officer that you feel you can trust. If you have an uncomfortable feeling about the loan officer, you should probably find someone else. You are not tied to the first person you talk to. Second, don't listen to the advice of everyone out there. There is a great article (if I say so myself) called "Bad Advice From Good People about Reverse Mortgages". Check it out if you want to see an article about how to qualify the person giving you the advice. The gist of it is; see if the person you're seeking advice from actually knows anything. In the example above, the financial planner may be a genius about retirement money, but probably has never originated a loan. If you ask your kids for advice, which is strongly recommended, make sure they know what they are talking about. If they are not qualified to advise, have them attend your meeting with the loan officer. This also applies to you. I have seen people disqualify themselves because they don't think they qualify. The best advice here is to ask a true professional in the field.
5. Rushing Into the Reverse Loan Process.
While it is true that I could tell you everything you need to know about a reverse Mortgage in about 10 minutes, I recommend letting it sink in after you gather the information. The rushing I am speaking of is when a loan officer is pushing you to do the loan. You need to do the loan when you are ready and understand what you are doing. Do it at your pace. Don't let someone else dictate it. That said; I don't want you to confuse the rushing with an efficient loan process. Once you have made a decision, the loan should take roughly 30-45 days to close. Usually once you have made up your mind, everyone involved wants to get it closed.
6. Try to Get More Money by Waiting Until You are Older
The title says five, but here is a bonus one that came up. It is not always the best option to wait until you are older to get more money. When interest rates are as low as they are, it is more benifical to do your loan now instead of later. While it is true when you are a couple years older you will get more money available to you, this assumes the interest rate doesn't change. On the other hand, if the rates go up, your age won't come close to making up the difference you lose. A rate change of a 0.5% can make tens of thousands of dollars difference. A few years will make only a few thousand dollars difference.
See more articles and blogs at Redwood Reverse Mortgage. David Prulhiere is the owner of Redwood Financial Services and is a specialist in reverse mortgage education and loans.
