When considering a Home Equity Conversion Mortgage, also known as a reverse mortgage, it’s important to have the right conversations with the right people. From discussing the matter with your family to speaking with and comparing various lenders, a reverse mortgage loan is an important financial decision that requires careful consideration—and conversation.
Once you’ve decided that a reverse mortgage is right for you, the conversation doesn’t stop there. Next, you’ll be required to meet with a government-approved independent reverse mortgage counselor.
Reverse mortgage counseling is not only a requirement, but a significant part of the loan process. Before you can formally submit your application for a reverse mortgage, you’ll meet with an independent third-party counselor approved by the US Department of Housing and Urban Development (HUD) to discuss the responsibilities that come with a reverse mortgage.
Whether conducted in person or over the phone, your counseling session provides you with an opportunity to make sure that all your questions have been answered and that you’re clear on all details of the loan—the process, the financial implications, your options, and more.
Why is Counseling Required?
Like all financial decisions, the decision to get a reverse mortgage is an important one. To better protect you and encourage that the reverse mortgage loan is used responsibly, HUD and the Federal Housing Administration (FHA) require you to participate in a third-party counseling session. The counseling session has several key purposes for you, as a borrower—namely, equipping you with education and resources to help you decide whether the reverse mortgage is right for you, exploring alternative financial solutions that may also meet your unique needs, providing guidance to help you make the best decision, and offering support throughout the application process.
While reverse mortgage counseling is a requirement, it is designed with you in mind. By meeting with an independent counselor, you can deepen your understanding of the reverse mortgage and get answers to any questions you may have. However, it’s important to note that the counselor should not explicitly tell you whether to proceed or which product to use—they are simply there to provide the guidance you need to make an informed decision.
The reverse mortgage counseling session takes about one hour. To make the most of your time in counseling, here is what you can expect before, during, and after your session.
Before Counseling: Preparing for Your Session
The first step in the counseling process is to schedule an appointment. HUD has a list of approved independent HECM counselors available on their website and you can search for those located in your area. Your loan originator or lender can also provide you with a list of counselors to choose from, but they cannot recommend a counselor or make the appointment on your behalf.
Once you reached out and scheduled your session, your counselor will send you a packet of materials to help you prepare. This packet should include:
- A document outlining important information you’ll want to know, titled “Preparing for Your Counseling Session”
- A loan comparison document that makes it easy to review numbers at a glance or side-by-side
- A copy of the Total Annual Loan Cost (TALC) Disclosure as required by the Federal Reserve Board on all reverse mortgage loans
- An amortization schedule for the loan
- A copy of “Use Your Home to Stay Home – A Guide for Homeowners Who Need Help Now,” a booklet by the National Council on Aging (NCOA)
As you review this literature, we recommend taking note of any questions that may arise along the way. A little bit of preparation before your session can go a long way. Also, keep in mind that some counseling agencies charge a fee, which is typically no more than $125. If you cannot afford to pay this fee, you should discuss with your counselor ahead of the session. Alternatively, some counseling agencies operate as nonprofits and receive government funding, so you may not be required to pay for your session at all.
During Counseling: Making the Most of Your Session
Once you’ve connected with your counselor, there are several topics you can expect to cover. Counselors are obligated to explain and review the advantages and drawbacks of reverse mortgages, as well as alternative options. They will also explain the responsibilities that come with a reverse mortgage loan—continuing to pay property taxes and homeowner’s insurance, maintaining the property, and remaining in the home as your primary residence. Other topics you can expect to discuss include repayment information, nonrecourse limitations, factors that determine loan amounts, refinancing the loan, and any possible impact that a reverse mortgage may have on public benefits. Your counselor will also assess the closing costs and fees to help you identify which will be the same across the board, and which could vary from lender to lender.
Beyond these obligations, the purpose of the counseling session is to provide you with all the information you need to consider whether to move forward with a reverse mortgage loan. To accomplish this, your counselor will discuss your individualized options, financial needs, and current situation. To help you determine the best course of action, you’ll review the Financial Interview Tool and discuss your current income, debts, and expenses. Your counselor will also discuss future plans and examine how a reverse mortgage might impact your heirs, as well as planning for repayment should you decide to move out of your home or sell it.
While the counseling session is a requirement in the reverse mortgage process, it is ultimately designed for your benefit. Throughout your meeting with your counselor, you will have ample opportunities to get answers to any remaining questions you may have. And by the end of your session, you’ll walk away with a thorough understanding of all aspects of a reverse mortgage—applied to your specific situation.
After Counseling: Certificate of Completion
Once you and your counselor are both comfortable that you understand the essentials of a reverse mortgage, they will issue a Counseling Certificate, which verifies that you have successfully completed counseling. The next step is to provide your lender with this document. Once they’ve received the signed certificate, they can move forward with accepting your application and processing your loan. It’s important to note that the certificate expires after 180 days if you don’t submit a loan application. If you haven’t applied for the loan within this 180-day window, you will be required to complete another counseling session and supply a new, updated counseling certificate.
Think about when you took out a mortgage to purchase a home. The more you could do to inspect the home and learn its true condition, the more confident you felt in your decision to move forward with the purchase. In a similar way, reverse mortgage counseling is meant to bolster and confirm your knowledge of the reverse mortgage process. You’ll want to use this time to get answers to all your questions and become steadfast in your decision to move forward with the reverse mortgage loan.
However, it’s important to note that reverse mortgage loans are not for everyone. The ultimate goal of reverse mortgage counseling is to ensure that you are making the best decision for you.
At Longbridge Financial, we take this sentiment to heart. We’re committed to recommending the reverse mortgage program only after we make certain that the program is right for you and meets your needs. We’ll get to know you, your goals, your home, and your finances as we discuss your options. You can rest assured that if we ever feel that a reverse mortgage is not the best option for you, we will tell you so. Not all lenders make that promise.