7 Reverse Mortgage Scams That Could Cost You Your Home

Reverse mortgages are a homeowner money move for people 62 and older who want to tap into their home's equity without selling or moving. The loan doesn't need to be repaid until the homeowner sells, moves out, or passes away.

While reverse mortgages themselves aren't scams, it is a decision you shouldn't make lightly. That being said, these loans are ripe with scammers who have found new ways to take advantage of unsuspecting homeowners.

Here are some common ways reverse mortgage scams are positioned so that you know whether or not someone is offering the real deal.

According to a study by Houzz, the median spend for homeowners on renovations has increased by 60% in recent years. Knowing how expensive these projects can be, a contractor might approach your home, say they see an issue, and suggest that you can use your home equity for repairs. They'll play on your fear to convince you that repairs need to occur quickly.

Then they'll say they "just happen" to know a lender. This is often a scheme where the contractor overcharges and then gets paid to refer homeowners to high-interest loan providers. Never combine a repair pitch with a loan.

Have you noticed an increase in door-to-door salespeople? If so, you're not alone. The Better Business Bureau has seen an influx of calls related to this. Never agree to a door-to-door sales pitch. At best, they'll withhold facts. At worst, they'll steal your personal information.

The stranger at your door may promise that reverse mortgages can easily "unlock cash." However, legitimate lenders do not use door-to-door sales tactics. Never share information with unsolicited visitors.

Scammers can look up whether or not homeowners are behind on property taxes or are otherwise at risk of foreclosure. They'll promise that the money from a reverse mortgage will pay off the existing mortgage or other home-related costs and save your home.

While you can use a reverse mortgage for this, you're only replacing one loan with another. Even worse, reverse mortgages come with a lot of hidden fees and don't eliminate other home-related expenses (e.g., property taxes, insurance, etc.). If you fall behind on these bills, you can still lose your home.

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The Department of Housing and Urban Development (HUD) handles many issues related to reverse mortgages. You typically deal with them in some fashion when seeking one of these loans, and clever scammers attempt to exploit this.

Criminals engage in unsolicited contact and pose as HUD-approved housing counselors. They'll charge high fees and steer you toward specific lenders who give them kickbacks. That's why you should always check the HUD website and only use counseling services listed there.

Many companies say thank you to our veterans through special offers and discounts, and scammers will attempt to take advantage of this. They will reach out and offer a reverse mortgage that's "only available to veterans," and they might make it sound too good to be true.

Sadly, that's because it is. Neither the military nor the Department of Veterans Affairs offers reverse mortgages specifically tailored for veterans. If someone offers such an option, they're being deceptive.

Scammers are aware that seniors often want to increase their nest egg whenever possible. A popular scam is to convince targets to take out a reverse mortgage for a "fixer-upper" investment property. Often, the scammer even offers to do the repairs on their own.

Unfortunately, homeowners find out too late that the property isn't nearly as valuable as the scammer suggested. Even if actual repairs are made on the property, many victims are left with two mortgages on homes they could lose money on by selling (if they can sell them at all).

Victims are often approached by scammers who claim a reverse mortgage at 62 can create an income stream that allows them to delay benefits until 70. However, the costs and fees related to these mortgages typically exceed any additional income you'd get by delaying your benefits. Even worse, you will have lost home equity.

While reverse mortgages can offer real financial benefits, it's often what homeowners overlook that opens the door to fraud. It's essential to work with reputable companies and avoid falling into high-pressure traps.

And remember, you have other options available if you are struggling with your mortgage. Consider speaking to a loan specialist or looking into refinancing options. Whatever route you choose, research and due diligence are worth the extra effort.