What’s reverse mortgage counseling?

When considering a reverse mortgage, you should be familiar with the requirements you must meet before your reverse mortgage application can be approved. One of the requirements of a reverse mortgage is to attend a counseling session with a government-approved reverse mortgage counselor. But, what does counseling entail?

Reverse mortgage counseling provides homeowners with impartial education about reverse mortgages, explains how reverse mortgages work, reviews the costs associated with reverse mortgages, and also covers alternative financing options. Counseling can be done in person or by telephone with an independent third-party counselor approved by the US Department of Housing and Urban Development (HUD).

What is reverse mortgage counseling?

Reverse mortgage counseling is required for senior homeowners who are interested in borrowing a Home Equity Conversion Mortgage (HECM). The counseling session must be completed with a counseling agency approved by the US Department of Housing and Urban Development (HUD). Since reverse mortgages are designed for older homeowners living on a fixed income, the government wants to make sure that they have all the information they need to make an informed decision.

You can complete a counseling session in person or by telephone, depending on which option is most convenient for you. The purpose of reverse mortgage counseling is to equip senior homeowners with education and resources to help them decide whether a reverse mortgage is a good option, alternative financial solutions that meet their needs and provide guidance throughout the application process. By meeting with a HUD-approved reverse mortgage counselor, you can understand reverse mortgages and get answers to any questions you may have.

What do reverse mortgage counselors do?

During the counseling session, HUD requires counselors to cover various topics with reverse mortgage applicants. Some of the topics you can expect to discuss include:

Features of reverse mortgages and how they work

The pros and cons of reverse mortgages

Financial obligations of reverse mortgages, including property taxes, property maintenance, and homeowner insurance.

Your financial situation and other alternative solutions that can help balance your budget and remain independent

Recommend private and public financial assistance programs that can help you pay home energy bills, medications, and meals.

The reverse mortgage costs that you will be required to pay

Tax implications of reverse mortgages

You can choose the reverse mortgage counselor you want to work with. HUD provides two search tools that you can use to find approved counseling agencies in your area, or those available by telephone. If you want to find in-person counseling near you, find counselors listed on the HECM Counselor Roster. Alternatively, you can check the HUD Nationwide List to find phone counseling options. You can also contact HUD by phone at 800-569-4287 to obtain a list of independent counselors.

What happens before reverse mortgage counseling?

You can start the counseling process by scheduling an appointment with an independent counselor.

You can search for approved counselors via the HUD search tools, or your lender can provide you with a list. However, the lender cannot book an appointment on your behalf; if the lender offers a list, it must contain at least five counseling agencies and their toll-free numbers.

Once you make the appointment, the counselor will confirm your appointment and schedule a date and time. The counselor will then send you an information packet to help you prepare for the counseling session.

Some of the materials included in the information packet include:

An informational document titled “Preparing for Your Counseling Session”.

A side-by-side loan comparison printout generated by either the lender or counselor, so the counselor can help you review what you are eligible to receive from the reverse mortgage.

A copy of the “Total Annual Loan Cost (TALC) Disclosure as required by the Federal Reverse Board on all reverse mortgage loans. It shows the loan costs if it remains outstanding for various durations.

An amortization schedule for your loan

A National Council on Aging (NCOA) booklet titled “Use Your Home to Stay at Home- A Guide for Homeowners Who Need Help Now”.

As you prepare for the upcoming counseling session, you should note down any questions you may have. This can help you know what to ask during the counseling session to help you make the right decision.

What happens during reverse mortgage counseling?

During the counseling session, you can expect the counselor to discuss how reverse mortgages work, the benefits of reverse mortgages, and explain alternative options.

The counselor will also explain the responsibilities that come with reverse mortgages, including paying property taxes, homeowner insurance, maintaining the property, and using the home as your primary residence. You can also discuss the non-recourse limitations, reverse mortgage refinancing, reverse mortgage costs, etc.

The reverse mortgage counselor should provide you with all the information you need to decide whether to proceed with the reverse mortgage loan. You will discuss your current income, debts, recurring expenses, your future plans, and how a reverse mortgage will impact your finances. You also get an opportunity to get answers to any questions you may have about reverse mortgages. By the end of the session, you should have a full understanding of all aspects of reverse mortgages and be able to make a decision.                                  

During the counseling session, you can have family members, friends, and trusted advisors participate in the meeting at your request.

What happens after reverse mortgage counseling?

Once you have completed the training session, the counselor will issue you with a counseling certificate to verify that you have completed counseling. If you wish to proceed with the reverse mortgage application, you should provide the lender with the counseling certificate so that they can move forward with the application and process your reverse mortgage loan.

The reverse mortgage certificate is only valid for 180 days from the date of issue. Hence, if you don't apply for a reverse mortgage, the certificate will expire within the 180-day window. If you submit a reverse mortgage application after the 180 days have lapsed, you will be required to complete another counseling session and provide an updated counseling certificate.

Reverse mortgage counseling cost

HUD authorizes independent counselors to charge fees for counseling services, but the fee must be "reasonable and customary". Typically, the cost of counseling ranges from $125 to $200, and this fee should be paid by the borrower, not the lender to ensure the impartiality of the process. If the borrower is experiencing financial hardships, they can contact the counseling agency to request a fee reduction or waiver, or wait until closing to pay the fee.