Reverse mortgage counseling is required by the federal government in order to obtain a reverse mortgage, you will need to participate in a reverse mortgage counseling session. This is true whether you are seeking a Home Equity Conversion Mortgage (HECM) or a traditional reverse mortgage.
Reverse Mortgage Counseling Requirement
Every person recorded on the deed to the property for which a reverse mortgage is being sought must complete reverse mortgage counseling. If the owner on the deed is an entity, such as a trust, the authorized representative must take the counseling.
Additionally, if you are married, your spouse must go through the counseling session even if he or she is not a borrower. With most counseling agencies, a married couple may take the session together, without having to pay for two separate sessions.
Reverse mortgage counselors must be approved through the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD). Lenders and other parties are not approved to give reverse mortgage counseling. However, your lender will likely be able to provide you with a list of approved counselors. You can also visit HUD's website for approved counselors as well. Most reverse mortgage counselors are available in person or by phone.
You will have to pay a counseling fee in order to take the counseling session. If your income is below poverty level guidelines by 200 percent, then you can ask for a waiver. Generally, the fee should be between $125 and $175 for your counseling. Fees are normally paid prior to the counseling.
What You Will Learn
Your counseling session will cover what a reverse mortgage is, how it works and how much it will cost you now and over the life of the loan. Your counselor will discuss with you the reasons why a reverse mortgage may a good idea for you and any negative impacts that it may have. Your counselor may be able to help you find alternative ways to obtain available funds for reasons such as health care, if that is the primary reason you are considering a reverse mortgage.
You will also learn about the numerous fees involved in obtaining a reverse mortgage. Some of the fees your counselor will explain include:
- Closing Costs: These fees are from others who have completed work related to your mortgage. For example, in order to find out how much your home is worth and the amount of money you qualify for, an appraisal has to be completed by a licensed appraiser. Additionally, the lender will require a title report to verify there is a clean title with no liens or encumbrances. These types of fees and others will be discussed with you by your counselor.
Insurance and taxes: An insurance binder is normally required at closing. Taxes are also required to be paid if they are due.
Loan origination fee: This type of fee is paid to the lender and/or broker for originating the mortgage. Fees range from $2,500 to $6,000 depending on your mortgage amount.
Mortgage Insurance: This is a fee to insure your loan to protect you and the lender. It can be financed into your loan.
Service Fee: This is a servicing fee that is charged for servicing your monthly mortgage. This is financed into the life of your loan as well.
Documentation of Completion
After completing the counseling, the counselor will present you with a certificate of completion. You will need to submit it to your reverse mortgage lender for proof of completion before moving forward with your application.
Get Prepared to Make an Informed Decision
If you want to obtain a reverse mortgage, counseling is required by the federal government. So, the first step in pursuing a reverse mortgage is to complete a reverse mortgage counseling session. Your counselor's duty is to provide you with complete and accurate information to aid you in making the best decision for yourself.