Because of the complexity of any type of reverse mortgage it's important to find a lender that best suits your needs and a local representative - usually referred to as the originator - you feel comfortable dealing with and whose advice and charges of the product being offered are transparent and fair.
The three largest reverse mortgage lenders are FHA (also referred to as HUD or HECM), Fannie Mae and Financial Freedom. Each offers something a little different, so it's important to at least be a little familiar with the types of program each offers.
The FHA program is by far the most popular accounting for over 90% of the market. What makes it so popular is that it's a government-insured program. Each loan is guaranteed to be paid to the borrower regardless; whether the lender goes out of business or the value of the home is insufficient to meet the loan amount, the government guarantees the borrower will receive every penny they're entitled to.
The main disadvantage with this program is that the amount that can be borrowed is capped and varies from location to location with urban areas generally having a higher amount than rural areas. So, even if you own a very expensive home, you cannot borrow over a certain amount. You can determine how much you can borrow by using a reverse mortgage calculator.
The Fannie Mae program, known as 'Home Keeper' is also popular. In most respects it offers the same as a FHA with a few important differences. Firstly, the amount that can be borrowed is also capped but it is higher than that of a FHA. Couples can borrow less than those who choose a FHA, but a single person can usually borrow more. One downside is that a line of credit stays fixed and doesn't grow like it can do with an FHA. However, it has one big plus point for many borrowers: currently, it's the only lender to offer a reverse mortgage for home purchase, thereby allowing a borrower to purchase a retirement home with no monthly payments.
Financial Freedom also offers a HECM and Fannie Mae program, but it further offers a program called the Financial Freedom Plan that effectively has no restriction on the amount that can be borrowed. This is most attractive for those in more expensive homes that want to unlock greater amounts of cash from its equity.
One downside is that the Financial Freedom program is not available in all states.
Another differentiating factor between this proprietary program to that of both the FHA and Fannie Mae programs is that there is no option to receive a monthly payments. Instead the borrower must elect to receive the money as a line of credit or as a lump sum.
None of the above directly offers loans to the public. This is done through local representatives called originators. It's important to choose one who is local as face to face advice is essential. Note: most banks or other home loan lenders do not offer this type of loan.
The largest originators are Financial Freedom Plan, Wells Fargo Mortgage, Seattle Mortgage and GMAC, however, there are many more. You can find a local originator by contacting the National Reverse Mortgage Lenders Association (NRMLA), website www.reversemortgage.org. If you don't have a computer, you can get this information from your local library.
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