Smart money housing reverse mortgage counseling

Reverse mortgages can be an attractive option for older homeowners who want to create an additional income stream in retirement. If you’re specifically interested in a home equity conversion mortgage (HECM), you’ll need to complete approved reverse mortgage counseling as part of the application process.

The U.S. Department of Housing and Urban Development (HUD) allows counselors to provide these services in person or by phone. This means that remote counseling is an option.

Key Takeaways

• A reverse mortgage arrangement allows homeowners to turn their home equity into a supplemental income stream.
• Reverse mortgages that are backed by the Federal Housing Administration (FHA) are called home equity conversion mortgages (HECMs).
• One of the requirements to get an HECM is the completion of reverse mortgage counseling by a counselor approved by the U.S. Department of Housing and Urban Development (HUD).
• Approved counselors may offer their services in person, by phone, or via videoconferencing under HUD rules.

What Is Reverse Mortgage Counseling?

HECMs make it possible for homeowners ages 62 and older to withdraw the equity from their homes without having to make monthly payments to a lender. This is one of the key differences between reverse mortgages and home equity loans or home equity lines of credit (HELOCs). Approval for an HECM hinges on a number of factors, including the completion of reverse mortgage counseling.

During a reverse mortgage counseling session, an approved counselor will discuss:

• The borrower’s financial needs and situation
• Features of a reverse mortgage
• Financial responsibilities for a reverse mortgage
• Costs of getting a reverse mortgage
• Reverse mortgage alternatives
• Financial and tax implications of a reverse mortgage
• How to spot reverse mortgage scams

Upon completion of this counseling, a homeowner will receive a certificate that they’ll need to fill out their HECM application.

Reverse mortgage counselors can withhold a counseling certificate if they believe that a homeowner does not fully understand their responsibilities with an HECM.

Can You Get Remote Reverse Mortgage Counseling?

HUD specifies guidelines for reverse mortgage counseling, including the setting in which counseling sessions can take place. According to HUD, counseling services may take place:

• In person
• By phone

HUD strongly encourages approved counselors to make every effort to provide HECM counseling in person—even in your home, if possible. Meeting in person is thought to allow a homeowner to participate more fully and to provide the counselor with a better opportunity to gauge how well the homeowner understands the HECM program. In fact, HUD policy specifies that phone counseling should be an alternative only if in-person counseling isn’t feasible.

Generally speaking, remote reverse mortgage counseling via Zoom or Skype isn’t an option under these rules. The state of Massachusetts did pass special legislation allowing the use of video and remote reverse mortgage counseling during the pandemic. But this measure is expected to expire on July 15, 2022.

HUD offers an online search tool that you can use to locate an approved reverse mortgage counselor near you.

Whether you choose reverse mortgage counseling that is in person or remote by phone, the materials covered are the same. Your counselor is also required to provide you with an informational package before the counseling session begins and disclose the fees that you’ll pay. HUD allows reverse mortgage counselors to charge fees that are “reasonable and customary” and at a level that’s commensurate with the services provided.

How to Prepare for Reverse Mortgage Counseling

The responsibility for scheduling reverse mortgage counseling lies with the homeowner. If you are looking for remote (phone) counseling, you’ll first need to find an approved counselor who offers that option. Once you’ve done that, you can schedule a counseling session.

Before this session, the counselor should provide you with informational documents. These include:

• A loan comparison breakdown
• A copy of “Preparing for Your Counseling Session”
• A copy of the total annual loan cost (TALC) disclosure, which is required for all reverse mortgage transactions
• A loan amortization schedule
• A copy of “Use Your Home to Stay at Home,” published by the National Council on Aging

You and your spouse will need to complete reverse mortgage counseling if both of your names are on the home’s deed, even if only one of you will be listed as the reverse mortgage borrower.

You can review these documents to better understand what a reverse mortgage involves and prepare any questions that you might have for your counselor. During the counseling session, you can expect to talk about things like how a reverse mortgage creates debt, who is responsible for repaying that debt during your lifetime and beyond, how much you might be able to borrow from your equity, and what you might pay in fees, interest, and taxes. This discussion can help you decide if a reverse mortgage is an appropriate financial solution for your situation.

What is HECM counseling?

HECM counseling is a required counseling session for homeowners who plan to get a home equity conversion mortgage. Homeowners must obtain a certificate from an approved reverse mortgage counselor before they can apply for an HECM.

Why is counseling required for an HECM?

Counseling is required for reverse mortgages that are backed by the federal government to ensure that consumers know what financial responsibilities they’re assuming. Reverse mortgages can have financial implications for homeowners and their heirs, which should be fully explained during a counseling session.

Where can I get reverse mortgage counseling?

The U.S. Department of Housing and Urban Development (HUD) maintains a list of approved reverse mortgage counselors. Depending on the counselor, your options for getting counseling may include in-person meetings or phone sessions.

The Bottom Line

Reverse mortgage counseling is required if you want to get an HECM, and the best way to get it is via an in-person meeting. Before you apply for an HECM, consider how well this option fits your needs. It’s possible that a home equity loan, a HELOC, or even cash-out refinancing could be better suited to your situation. Also, take time to compare the best reverse mortgage companies online. Doing so can help you get an idea of how much you might pay for a reverse mortgage and which company offers the most favorable terms.