What Is Reverse Mortgage Counseling?
Reverse mortgage counseling is a counseling session that’s required for homeowners who are considering a home equity conversion mortgage (HECM). An HECM is a type of reverse mortgage that’s backed by the federal government.
Homeowners must complete counseling with an approved counselor prior to applying for an HECM. The purpose of counseling is to ensure that homeowners understand what’s involved when getting a reverse mortgage.
- Homeowners who are considering a reverse mortgage are required to complete an approved reverse mortgage counseling session.
- The purpose of reverse mortgage counseling is to ensure that homeowners understand the financial implications of a reverse mortgage and what alternatives they may have for withdrawing home equity.
- Reverse mortgage counseling can be completed in person or over the phone with a U.S. Department of Housing and Urban Development (HUD)-approved counselor.
- Reverse mortgage counselors can charge fees that are “reasonable and customary” for counseling services.
Understanding Reverse Mortgage Counseling
Reverse mortgage counseling is an opportunity for homeowners to learn about how reverse mortgages work so that they can make an informed decision about whether they should get one. A reverse mortgage allows homeowners to convert the equity in their homes to income. If you’re considering an HECM, you must complete approved reverse mortgage counseling.
You have the right to choose which counselor you work with. HUD offers two search tools to help you find reputable reverse mortgage counselors:
The first tool helps you to find options for in-person counseling near you. The second can help you find phone counseling options if you’re unable to meet with a counselor face-to-face.
HUD strongly encourages consumers to choose in-person counseling to ensure that they fully understand the implications of a reverse mortgage.
HUD requires approved counselors to cover certain topics during counseling sessions. When you meet with a counselor, you can expect to discuss the following:
- Your financial situation, including your income needs
- Features of a reverse mortgage and how they work
- Financial responsibilities for a reverse mortgage, including your obligation to pay homeowners insurance and property taxes
- Reverse mortgage costs
- Financial and tax implications of reverse mortgages
- Reverse mortgage alternatives, such as home equity loans and home equity lines of credit (HELOCs)
- Reverse mortgage scams, financial elder abuse, and how to spot both
Reverse mortgage counselors are allowed to charge fees for their services, and those fees must be “reasonable and customary,” according to HUD. The fees that you pay can’t exceed the level of services provided to you.
Reverse mortgage counseling fees may be waived for homeowners whose income is below 200% of the federal poverty guidelines.
Reverse Mortgage Counseling Special Considerations
Completion of reverse mortgage counseling is required before you can move ahead with an application for an HECM. But obtaining your completion certificate is not guaranteed. Your counselor can withhold your counseling certificate if they believe that you don’t fully understand the details of a reverse mortgage or what getting one might mean for you. You may need to complete additional counseling sessions to obtain it, which can delay the process of getting a reverse mortgage.
Taking time to prepare before meeting with your counselor can help to ensure that the session goes as smoothly as possible. For example, it may be helpful to organize financial statements and records so that you understand how your income and expenses add up. You can also take time to read up on reverse mortgages and how they compare to other products, such as home equity loans.
Your reverse mortgage counselor should provide you with an informational packet that details what to expect during your counseling session.
What is HECM counseling?
HECM counseling is a required counseling session that homeowners must complete before applying for a home equity conversion mortgage. During this session, the homeowner meets with a U.S. Department of Housing and Urban Development (HUD)-approved counselor to discuss the features of reverse mortgages and their financial situations to help decide if it’s an appropriate option for accessing their home equity.
Why is counseling required for a reverse mortgage?
Reverse mortgages are complex financial products, and reverse mortgage counseling is designed to ensure that homeowners understand how they work. Reverse mortgage counselors are required to cover certain topics during a counseling session, including the features of reverse mortgages and their costs, tax and financial implications of reverse mortgages, and how to spot reverse mortgage scams.
How do you find a reverse mortgage counselor?
HUD offers online search tools to help homeowners find reputable reverse mortgage counselors in their area. If you can’t meet with a reverse mortgage counselor in person, HUD offers a list of approved counselors who offer phone counseling sessions.
How much does reverse mortgage counseling cost?
Reverse mortgage counselors can charge fees for their services, and these fees can vary by organization. It’s possible that you may pay anywhere from $125 to $250 for a reverse mortgage counseling session, unless you qualify for a fee waiver.
The Bottom Line
Counseling with a government-trained and -approved counselor is required before entering into a reverse mortgage, because this type of loan is complex. Reverse mortgage counseling aims to protect borrowers by making sure that they understand how the loans work: the benefits as well as the costs, payment plans, how to spot red flags or signs of elder abuse, and other financial alternatives that might be available to the homeowner.
Reverse mortgage counseling may take place by phone or in person, and counselors are trained to connect homeowners to other services—including social or health-related services—that can help them manage finances and continue living independently.