What You Need to Know About Reverse Mortgage Counseling
By: Courtney Jorstad
September 11, 2023 • 6 minute read
If you’re considering a reverse mortgage, it’s important to understand the intricacies of this financial tool before making a decision.
Reverse mortgages provide a way for senior homeowners to access the equity in their homes without monthly payments, but they come with specific eligibility criteria and obligations.
To navigate this process successfully, homeowners are required to complete reverse mortgage counseling, an impartial education program designed to provide detailed information about reverse mortgages to ensure that you are equipped to make an informed decision.
This article is all about what you need to know about the reverse mortgage counseling process and requirements.
What is a Reverse Mortgage and How Does it Work?
The most common type of reverse mortgage is the home equity conversion mortgage (HECM), also known as a HECM reverse mortgage or a HECM loan. Other types of reverse mortgages include single-use reverse mortgages and proprietary reverse mortgages such as jumbo reverse mortgages.
Reverse mortgages are only available to homeowners who are 62 years of age or older and have significant equity built up in their homes. A reverse mortgage can only be taken out on the borrower’s principal residence which means that investment properties and vacation homes do not qualify.
A reverse mortgage is a financial tool that allows senior homeowners to access equity in their home without taking on monthly payments. When borrowers take out a reverse mortgage, the first thing it does is pay off the traditional mortgage, if there still is one. For the remaining reverse mortgage proceeds, homeowners have the choice of receiving their funds as a lump sum, monthly installments, and/or a line of credit.
Reverse mortgage borrowers are still responsible for paying the property taxes, homeowners insurance, and maintaining the home.
A reverse mortgage is backed by the federal government. It is regulated by the U.S. Department of Housing and Urban Development and insured by the Federal Housing Administration (FHA). As a result, HECM reverse mortgages come with several protections. One of those protections is required counseling.
What is Reverse Mortgage Counseling?
Reverse mortgage counseling is an impartial education program that potential applicants for a reverse mortgage are required to complete as part of the reverse mortgage process in order to file a loan application.
The purpose of the counseling session is to educate homeowners about how a reverse mortgage works, features of the reverse mortgage program, and factors to consider. The counselor will also give homeowners detailed information so they can be sure a reverse mortgage makes sense for their situation and make sure they know about possible alternatives such as a home equity line of credit (HELOC) or a home equity loan.
The counselors will also give the reverse mortgage borrowers resources to help them make an informed decision and support them throughout the process.
The reverse mortgage counselors are not supposed to tell the client if they should proceed with a reverse mortgage, or which reverse mortgage product they should choose. Their role is purely to be an objective educator.
What are the Reverse Mortgage Counseling Requirements?
The counseling session must be done with a third-party HUD-approved reverse mortgage counselor. That means that the counseling session cannot be done with your reverse mortgage lender.
In order to move forward with the reverse mortgage application process, homeowners must also receive a certificate of completion and give a copy of their certificate to the lender to prove that they completed the counseling session.
During the counseling session, the counselors must cover the following required information with the prospective borrower in depth, according to HUD:
- The homeowner’s needs and circumstances
- Reverse mortgage features
- The responsibilities of homeowners with a reverse mortgage
- How much it costs to obtain a reverse mortgage
- How a reverse mortgage may affect taxes and other finances
- Alternative options to a reverse mortgage
- Information about reverse mortgage fraud and scams to be aware of
The HUD-approved housing counselors are required to take into account each person’s unique needs and situation, remain objective about the options available, and they are not permitted to “steer” the homeowner in any particular direction nor toward specific reverse mortgage lenders or loan originators.
How Long Does Reverse Mortgage Counseling Take?
Reverse counseling sessions last between 60 and 90 minutes, but the session may last longer if required.
How Much Does Reverse Mortgage Counseling Cost?
While the exact cost of a reverse mortgage counseling session will vary depending on the location and the counseling agency, they typically cost between $125 and $200.
If a homeowner is facing financial hardship, he or she may request a reduced fee.
It’s important to note that the counseling session has to be paid for by the homeowner. It cannot be paid by the lender. The reason for this is to ensure the independence of the counselors so they do not feel any obligations to any lenders.
How to Find Reverse Mortgage Counseling Near Me?
Your reverse mortgage lender is allowed to provide you with a list of reverse mortgage counseling services for you to contact, but the list of counselors your loan officer gives you must contain a minimum of five agencies that are available nationwide, a list of agencies that are near to the homeowners locally, and a list of agencies that are available for phone appointments.
How Long Is a Reverse Mortgage Counseling Certificate Good for?
The certificate that the counselor gives the homeowners after the completion of the counseling session is good for 180 days.
Depending on the state where you live, the validity of the certificate is good as long as the loan closes within that 180-day period. In most states, the certificate is valid as long as the homeowners obtain a case number from the lender before the expiration date.
If a homeowner decides not to obtain a case number or close on the reverse mortgage loan within that 180-day period, he or she will have to complete a second counseling session before applying.
Can I Get Reverse Mortgage Counseling by Phone?
Yes, reverse mortgage counseling sessions can be completed by phone or in person. The counselors are trained to handle both options.
What Law Requires Counseling for Reverse Mortgages?
Reverse mortgage counseling is required by the U.S. Department of Housing and Urban Development (HUD). HUD dictates what details of a reverse mortgage must be provided during the counseling session and who is allowed to conduct the counseling.
The Bottom Line
While reverse mortgage counseling may feel like another hoop you have to jump through to obtain a reverse mortgage, consider it an additional protection to ensure that a reverse mortgage is the right choice for you and your unique situation.
If you are ready to get started with the reverse mortgage application process, check out these featured reverse mortgage lenders.
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.