The appeal of a reverse mortgage lies in its potential to provide a much-needed source of retirement income for those who may have limited pension or savings, helping them cover living expenses, medical costs, or other financial needs.
Reverse mortgage counseling is a required step that plays a pivotal role in ensuring that individuals considering a reverse mortgage make informed and confident decisions, so they can be sure that a reverse mortgage is the right choice for them.
In this article, we will cover everything you need to know about reverse mortgage counseling so you can feel comfortable navigating this unique requirement.
Understanding Reverse Mortgages
A home equity conversion mortgage (HECM), also known as a reverse mortgage, is a unique financial product designed for senior homeowners that allows them to convert a portion of their home equity into cash without having to sell or move out of their homes.
While it is a loan like a traditional mortgage, the way it works is very different. In contrast to a traditional mortgage where borrowers make monthly payments to the lender to gradually build equity and eventually own the home outright, a reverse mortgage works in reverse.
First, the reverse mortgage loan will pay off your current mortgage, if you still have one.
For the remaining equity, instead of making a monthly mortgage payment, homeowners receive the reverse mortgage proceeds from the lender, either as a lump sum, a line of credit, regular monthly installments, or a combination of these options.
Homeowners are still responsible for paying for the property taxes, homeowners insurance, and maintenance of their principal residence.
The loan is repaid when the homeowner permanently moves out of the home, sells the property, or passes away.
Unlike traditional mortgages, credit and income qualifications are generally less strict for reverse mortgages, making them an appealing option for seniors seeking supplemental income during retirement.
Reverse mortgages are backed the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD).
Reverse Mortgage Requirements
To be eligible for obtaining a reverse mortgage, there are certain criteria that need to be met by the prospective borrower:
- Age. At least one of the homeowners must be at least 62 years old.
- Residency. The property in question must be the primary residence of the homeowner. This means that it cannot be a second home or an investment property.
- Equity. The homeowner must have sufficient equity in their home.
- Counseling. The homeowner must undergo mandatory counseling from a HUD-approved reverse mortgage counselor to ensure they fully understand the terms and implications of the reverse mortgage program.
The Role of Reverse Mortgage Counseling
Reverse mortgage counseling is a mandatory educational program that HUD requires all prospective reverse mortgage borrowers to complete as part of the loan application process. It provides impartial guidance and ensures that applicants are well-informed before proceeding with their loan application.
The counseling session aims to educate homeowners on the workings of a reverse mortgage, the features of the reverse mortgages, and important information they should consider.
Additionally, the counselor will provide homeowners with detailed information to ensure that a reverse mortgage aligns with their specific situation. They will also inform homeowners about potential alternatives, such as a home equity line of credit (HELOC) or a home equity loan.
The counselor will also provide helpful resources to assist homeowners in making an informed decision and provide support for the homeowners during the reverse mortgage process.
The reverse mortgage counselors should not advise clients on whether or not to proceed with a reverse mortgage, nor should they recommend a specific reverse mortgage product. Their primary responsibility is to educate clients in an unbiased manner.
The Reverse Mortgage Counseling Session Format
The reverse mortgage counseling session can be conducted in-person or over the phone with a third-party counselor.
In-person sessions typically involve meeting with a certified counselor face-to-face at a designated location or in your home. This is the format that HUD recommends.
Online counseling via Zoom or Skype is not available.
Phone sessions, on the other hand, offer convenience and flexibility as they can be scheduled at a time that suits both the counselor and the homeowner. This may also make it easier for other family members to attend.
Once the appointment is made, you will be sent an information packet that will provide details about the benefits and costs of a reverse mortgage. It will be important to review this packet prior to the appointment, and your counselor is required by HUD to give you sufficient time to review this packet.
The counseling session typically takes between 60 and 90 minutes. The amount of time it takes depends on each individual borrower. It may take longer if the homeowners have a complex financial situation or if the homeowner has additional questions.
Homeowners are allowed to have family members, or a financial adviser included in the session.
Reverse Mortgage Counseling Requirements
The reverse mortgage counseling session must be completed with a third-party HUD-approved counselor.
While your loan officer can provide you with a list of at least five counseling agencies to contact, the reverse mortgage appointment has to be made by the homeowners. It cannot be made by the lender.
Here is a list of required information that HUD mandates that the reverse mortgage housing counselors cover during the counseling session:
- Homeowners’ needs and circumstances
- The features and details of a reverse mortgage
- Borrower responsibilities under a reverse mortgage
- The costs of a reverse mortgage
- Financial and tax implications of a reverse mortgage
- Alternative options to a reverse mortgage
- Information about reverse mortgage fraud schemes and elder abuse to be aware of
Once the counseling session is complete, the certificate of completion will be sent to you rightaway. This can be done through email, fax, or traditional mail.
You will need to provide the reverse mortgage counseling certificate to your lender before you can move forward with the reverse mortgage loan application.
Common Reverse Mortgage Counseling Questions
How Do I Find Reverse Mortgage Counseling Near Me?
Your reverse mortgage loan officer will be able to provide you with a list of reverse mortgage counseling services in your area.
Alternatively, you can also obtain a list of counselors by calling HUD at 800-569-4287 or using HUD’s HECM agency online search tool, which allows you to filter by Zip Code, city, and state.
What is the Reverse Mortgage Counseling Cost?
The cost of a reverse mortgage counseling session varies based on the location and counseling agency. The typical range is from $125 to $200.
The homeowner is responsible for the cost of the counseling session, as it cannot be paid by the lender. This requirement guarantees the counselors’ independence, preventing any potential obligations towards lenders.
Can I Get Free Reverse Mortgage Counseling?
In cases of financial hardship, homeowners can request a reduced fee. This is done through the agency not the lender. This typically involves submitting an application along with supporting documentation that demonstrates the homeowner’s current financial situation.
There are also some counseling agencies that offer their services at no charge. Your loan officer may be able to direct you to one of these agencies.
How Long is a Reverse Mortgage Counseling Certificate Good for?
The counselor provides homeowners with a certificate at the end of the counseling session, which remains valid for 180 days.
In most states, the certificate remains valid if the loan is closed within the 180-day period, provided that the homeowners obtain a case number from the lender before the expiration date.
However, if a homeowner chooses not to obtain a case number or close on the reverse mortgage loan within this timeframe, they will be required to complete a second counseling session before applying.
Can I Get Reverse Mortgage Counseling by Phone?
Yes, reverse mortgage counseling can be completed in person or by phone.
If I Complete Counseling, Does that Mean I’ll be Approved for a Reverse Mortgage?
Receiving a reverse mortgage counseling certificate is not a guarantee that you will be approved for a reverse mortgage loan. However, it is an important step to complete so that you are able to file your reverse mortgage application.
Reverse mortgage counseling is a required step for prospective applicants to navigate the complexities of obtaining a reverse mortgage. By participating in counseling, applicants can make informed decisions about whether a reverse mortgage aligns with their financial goals and circumstances.
Remember to reach out to a HUD-approved counselor to schedule your counseling session and obtain the necessary certificate before moving forward with your reverse mortgage application.
Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.
This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.