Reverse mortgages have been helpful for those looking to supplement their retirement incomes. However as the interest on reverse mortgages continues to increase, so have the scams. It’s left seniors vulnerable, sometimes losing thousands of dollars on their equity. Because reverse mortgages involve your largest asset (aka your home), your retirement could take a big hit. Below, we’ll provide some insight on how you can avoid reverse mortgage scams.
What are the biggest red flags of a potential reverse mortgage scam?
Red flag #1: Nickel and diming you for free information.
Unfortunately, many estate planning companies have been charging tons of money for information that is easily accessible and free from the United States Department of Housing and Urban Development (HUD). They claim that it’s a part of an estate planning program. Seniors are unaware that these programs are collecting the money, and charging a fee of up to 10% of the total amount borrowed. As a result, victims are losing thousands on their reverse mortgage.
Red flag #2: The counseling session is made to seem unimportant.
Seeing a counselor who is HUD approved is an important part of learning about reverse mortgages. In a lot of cases, many find that it’s probably not in their best interest after all. It’s a good idea to educate yourself on all aspects of reverse mortgages, including fees, benefits, and cost. Your counselor should act as a guide in these areas. And if they aren’t — you could be subject to a scam.
Red flag #3: Unexpected and expensive repairs.
If a lender requests for a repair, make sure you know the nitty gritty details of what you’re paying for. If you want a second opinion, consider reaching out to other contractors to get a quote. It’s always a possibility that the contractor and the lender are working together to jip you on prices.
Red flag #4: Unfinished or incorrect forms.
You know when you download an app on your phone and you neglect to read the terms and conditions before agreeing to download? This is not one of those cases! When closing your loan you should diligently look over all documents, fees, and forms. Be on the lookout for blank areas or incorrect information and be sure to discuss it with your lender.
Red flag #5: Using the mortgage to pay for purchases.
Some companies that sell big products or services might use a reverse mortgage as a way to pay for those things. When the added cost of the reverse mortgage becomes a part of the purchase, the homeowner will end up paying way more than the benefit provided by the product or service.
Red flag #6: Sketchy terms and conditions.
If you have a hunch that there are excessive fees in a contract, trust your gut. Your equity could be severely damaged if you agree to the terms of a scam. Lenders sometimes try to use shared equity or terms as a way to obtain money once the home is refinanced or sold.
Red flag #7: Lack of transparency.
While you can stay in your home without having to make mortgage payments, there are other expenses that still need to be paid, such as maintenance costs or property taxes. Unfortunately, this isn’t always communicated with the homeowner. And if you don’t have a consistent income, you could find yourself in trouble. It’s critical that you understand all the benefits and risks of a reverse mortgage before moving forward with it in the first place.
If you need help with reverse mortgage scams, call Ken Venick! He has over 30 years of experience in the mortgage business and can put you or your client in the best position for your specific needs. Visit our FAQ page to learn more, and contact us today.