What Can You Expect From a Reverse Mortgage Counseling Session?
Reverse Mortgages are popular borrowing options for older Americans. But before you can start the process of applying for a Home Equity Conversion Mortgage (HECM) loan, the Department of Housing and Urban Development mandates that you attend a reverse mortgage counseling session. What does that mean?
To get approved for a HECM loan, you must attend a counseling session with a HUD-approved counselor. These counselors have received training in Reverse Mortgages and can provide you with a complete picture of the loan, its pros and cons, and your rights and responsibilities under the loan.
Your lender can suggest counselors or counseling agencies in your area, but counselors and lenders are forbidden from working in conjunction with each other, so the lender must present you with at least three counseling alternatives. Alternately, you can (and should) check out possible free counseling sessions which are often offered by local housing rights groups, senior citizens organizations seniors rights advocates.
Every session is individualized, and will take into account your specific circumstances (your income, your age, your marital status, your expectations for leaving property to heirs, etc). In Massachussets you can complete the session by phone, but in most states, you must complete the session in person. If you are married, you must bring your spouse to the counseling session, even if s/he is not going to be signing onto the loan.
So, what can you expect from your Reverse Mortgage counseling?
How a Reverse Mortgage Works
The counselor explains how a reverse mortgage works. You will learn more about the Federal Housing Administration, which is the administering agency that oversees the program. You’ll learn what the HECM limit is, about the Standard HECM versus the HECM for Purchase (where you can combine your purchase of a different property with your HECM loan) and what draw options you have.
Every case is individual and the counseling session will take that into account. You will present the counselor with individual information about your present and expected income, your present financial obligations, your home’s estimated worth and any other information that may be relevant to a Reverse Mortgage Loan. The counselor will help you do the math so you can see how much of your home equity you’ll be able to access and how that will translate into a line or credit or monthly payments.
The counselor will also help you compare your options with other financial tools or loan so you can get a better idea of the choices that are available to you.
It’s important for you to understand your obligations under the terms of the loan. What loan costs exist? (third party costs such as the fees that you’ll need to pay to the lender to initiate and administer the loan). How will the loan’s interest rate affect you? What monthly payments will you need to make to maintain the loan? What other payments (home insurance, tax payments, home maintenance) will you be obligated to maintain? And what will the consequences be if you don’t fulfill these responsibilities?
If you’re married or have some kind of relationship in which another individual expects to be able to live in the house after you die or otherwise must leave the house (partner, adult child, etc), how does a Reverse Mortgage impact on that individual? The counseling session will cover this information.
Recent changes have made it mandatory for the lender to investigate your credit history to ensure that you are able and willing to maintain the loan. How might this affect your application? What can you do if your credit history shows that your past credit history or repayment history is unsatisfactory? The counseling session will discuss the set-aside fund which the lender may set up with some of your loan funds, which will cover these expenses and still allow you to take out a Reverse Mortgage.
The goal of the session is to educate you about the loan, not to convince you one way or another. Weigh all aspects of the loan so that you’ll make the best decision for you and your family.