A reverse mortgage is perhaps the only financial product that requires counseling. This is because a reverse mortgage concerns homeowners that are senior adults (62 years or older) and who are likely to not be educated about vital information about the mortgage. Counseling ensures any step they take pertaining to the mortgage arrangement is only after proper due diligence. A counselor makes sure the property owner is equipped with all the information they require to understand the ins and outs of a reverse mortgage.
A reverse mortgage counseling could either happen in person or over a phone call. The session usually lasts an hour or two or even more, based on the mortgageâs specifics and the mortgageeâs requirements. Many senior adults use a reverse mortgage to meet their medical expenses, supplement social security, and make property improvements. If you have zero or low outstanding mortgage liability, a reverse mortgage could let you borrow against your homeâs equity.
Since a reverse mortgage could be put to use in different ways, counseling is needed to help people understand what they are exactly signing up for when they go the reverse mortgage route.
What Does the Term “Counseling” Imply?
Counseling, in the reverse mortgage context, doesn’t mean psychological or therapeutic therapy. The goal is to help you, the mortgagee, learn more about your loan options. It could be likened to tutoring or helping you understand particular concepts or assimilate information that looks complex due to its enormity and/or technicality. For example, if you do not generally read the fine print because the information to process is massive, a counselor would summarize the information and present it to you in an easy-to-comprehend manner.
Benefits of a Reverse Mortgage Counselor
The following are the things a reverse mortgage counselor could do for you.
- Help you understand the reverse mortgage process and your responsibilities toward the loan. Your responsibilities include your obligation to continue paying for homeowner’s insurance, property taxes and maintain the property
- Explain to you the costs and fees attached to closing the loan delving into the details of those costs and how those costs may or may not differ across lenders.
- Review your revenue sources and expenditure and advise the different reverse mortgage product choices you have, and the positives and negatives attached to the various options.
- Bring alternative options to your attention, for instance, property tax deferral plans.
- Check if you are qualified for other financial assistance plans, such as grant money, home repair loans, food stamps, social services, fuel assistance, or healthcare.
- Clearly explain the consequences affecting your eligibility under federal or state programs and how that would impact your heirs or estate.
- Review the mortgage loan comparisons furnished by your lender, along with the total yearly loan expense disclosure.
- If applicable to your case, the counselor would review property repairs that your house may need to become eligible for a reverse mortgage.
If you have questions or doubts, the counselor will cater to them. Kindly note a reverse mortgage counselor works in your interest and would, therefore, not recommend you products of a specific lender. The counselor’s job is to offer you information and clarity. They will not and should not advise you to sign up for a particular loan program. The objective is to present you the truth and ground reality so that the decision you make is factual.
Is Reverse Mortgage Counseling Mandatory?
As per the U.S. HUD (Housing and Urban Development) department, homeowners interested in a HECM (Home Equity Conversion Mortgage) must receive reverse mortgage counseling. This is mandatory and ensures that they are informed of the alternatives to and implications of a reverse mortgage. The certificates homeowners receive after the counseling is proof that the requirement has been met.
Who Should Complete the Reverse Mortgage Counseling Process?
All loan borrowers and also non-borrowing spouses (if applicable) would have to go through counseling. In addition, parties holding title to a property, who aren’t eligible borrowers, should complete the reverse mortgage counseling process. It’s important that all parties involved know the pros and cons attached to a reverse mortgage and also the risks linked with relinquishing their personal interest in the home.
Steps Involved/Requirements for Reverse Mortgage Counseling
To make the reverse mortgage counseling process quick and smooth, you would need to do the following.
- Have a set of pre-counseling documents, which includes loan comparison papers, amortization schedule, closing cost worksheet, and TALC (total annual loan costs) handy.
- Determine whether you would like the counseling over the phone or meet the counselor in person.
- Call around and confirm counselor pricing and availability. Some counseling agencies or counselors require upfront payment while others would agree to finance their fee with your reverse mortgage closing expenses.
- After the counseling is complete, you would get three prints of your counseling completion certificate via mail. If you prefer, you can have a copy sent over via email or fax to your lender.
Costs of Reverse Mortgage Counseling
A reverse mortgage counseling session would cost anywhere between $125 and $250 per session. The fee is usually paid upfront or before the counseling is underway. Older adults could make a delayed payment, which could be until the mortgage closes, based on their financial status. Counseling fee payment could also be delayed if you are facing hardships, such as disability, foreclosure, bankruptcy, or receiving hospice or respite care.
Some counseling firms are given government grants that at times help them offer you their service for free. After the sessions are completed, you and the counselor would sign a certificate that authenticates that the counseling requirements have been met.
The Validity of the Certificate
The counseling certificate would be valid for six months or 180 days. In most states, the certificate should be valid at the time of the case number assignment. The loan could, however, be closed even if the certificate is no longer valid, in most states. If it has, you will have to go through another counseling session before you could close the loan.