Reverse Mortgage Counseling

If you’re at least age 62, you may be considering a reverse mortgage to cover living expenses, home repairs, and other costs. Unlike a traditional mortgage, you must not repay a reverse mortgage until you sell the home, move out, or pass away.

Because reverse mortgages are such unique products, you must undergo reverse mortgage counseling before applying for one. This is usually a short, one-hour session to ensure you understand the benefits and drawbacks. 

Below, we’ll walk you through the entire reverse mortgage counseling process so you know what to expect and how to prepare.

What you need to know about reverse mortgage counseling

We’ll go into more detail below, but here are the top facts to remember about reverse mortgage counseling:

• Counseling is required before you can apply for a reverse mortgage.
• Both you and your spouse must complete it if you’re married.
• HUD-approved agencies provide it.
• You can choose your counselor.
• Expect to pay between $125 and $200 for counseling, with the option to pay at closing if you can’t pay upfront.
• Counseling doesn’t guarantee loan approval.
• You’ll receive a certificate upon completion.
• Your counselor will discuss alternatives if a reverse mortgage isn’t right for you.

With that in mind, let’s walk through everything you need to know about reverse mortgage counseling.

What is reverse mortgage counseling? 

Reverse mortgage counseling is an educational session that potential borrowers must complete before taking out a reverse mortgage. This includes private jumbo mortgages and home equity conversion mortgages (HECMs) insured by the Federal Housing Administration (FHA).

Your lender doesn’t provide counseling; it’s taken through a third-party agency approved by the Department of Housing and Urban Development (HUD). Counseling typically involves a single session that takes about an hour to complete. 

During this session, your counselor’s job is to act as a neutral third party who reviews your financial situation, educates you on reverse mortgages, and provides resources to help you make an informed decision. 

Your reverse mortgage counselor will never steer you toward getting a reverse mortgage or tell you which lender to use. Their job is to remain objective and neutral. 

Is reverse mortgage counseling online, by phone, or in person? 

Typically, you’ll have your reverse mortgage counseling session in person. This is the method HUD prefers.

However, times have changed since the coronavirus pandemic, and many counseling agencies recognize the need for telephone and online appointments. You can check with the HUD counseling agencies in your area to see your options for in-person and virtual appointments.

Why do you need counseling for a reverse mortgage?

The FHA mandates that every reverse mortgage borrower goes through counseling to ensure you understand:

• How reverse mortgages work
• How a reverse mortgage will affect you, your spouse, and your heirs
• Your responsibilities as a borrower, such as maintaining the property and paying property taxes and home insurance
• How to spot potential reverse mortgage fraud schemes and elder abuse
• Possible alternatives to a reverse mortgage that may better suit your needs

Post-counseling, you’ll receive a certificate of completion, which is necessary to move forward with a reverse mortgage application. This certificate is how you prove you’ve completed this requirement. 

Do you get to choose your reverse mortgage counselor? 

Yes, you have the power to choose where you get reverse mortgage counseling. Your lender does not choose a counselor for you. 

However, if you’ve already spoken to a lender, it may provide a list of HUD-approved counseling agencies. At least five agencies on this list will be in your state, and at least one will be within driving distance of your home. 

Who must complete counseling? 

Everyone listed on your home’s title must complete reverse mortgage counseling. If you’re married, you and your spouse must attend, even if they’re a non-borrowing spouse. 

The idea is that your reverse mortgage decision will affect their future living arrangements, so it’s best if you both sit in on counseling.

What happens after reverse mortgage counseling? 

After counseling, you’ll receive a certificate of completion. You get this certificate by correctly answering five of the 10 questions asked by your counselor during the session. This certificate is your green light to proceed with your reverse mortgage application. 

How long is a reverse mortgage counseling certificate good for?

Your reverse mortgage counseling certificate is usually valid for 180 days, about six months. Lenders will need to see this certificate before you can apply for a reverse mortgage. If your certificate expires before you apply, you must complete counseling again. 

When is counseling required during the reverse mortgage process?

You’ll need to complete reverse mortgage counseling and have your certificate of completion in hand before you can submit a loan application. So you’ll go through counseling early in the reverse mortgage process.

The steps look like this: 

1. Research reverse mortgages to understand the basics.
2. Select a HUD-approved counselor and complete reverse mortgage counseling.
3. Receive a certificate of completion from counseling.
4. Shop for and choose a reverse mortgage lender.
5. Apply for a reverse mortgage with the lender of your choice.
6. Wait for your lender to complete the underwriting and appraisal process.
7. Close on the loan, and get your reverse mortgage funds.

Are there specific eligibility requirements for borrowers to undergo counseling?

There aren’t strict eligibility requirements for the counseling itself, but you typically must be at least 62 years old and have a low mortgage balance or own your home outright to qualify for a reverse mortgage. 

During counseling, you’ll share this information: 

• Your name, address, and date of birth
• Your estimated home value, location, and type
• Your current mortgage debt
• Your unpaid federal debt
• Your main reasons for getting a reverse mortgage
• Your personal and financial goals

Your counselor’s job isn’t to approve or deny you for a mortgage, so it doesn’t matter what your financial situation looks like. This person is there to ensure you understand the facts. So in that way, there are no eligibility requirements for counseling. You only need to be interested in a reverse mortgage.

Do you pay for reverse mortgage counseling?

Yes, you pay for reverse mortgage counseling, which can cost around $125 to $250. You can pay this fee upfront or from your reverse mortgage proceeds when you close on the loan. Lenders cannot directly or indirectly cover this fee. It must come from you.

By law, reverse mortgage counselors can’t turn you away if you can’t pay for counseling. If your income is below 200% of the Federal Poverty level, the agency will let you wait and pay the fee once you close on your loan. That way, you can use your proceeds to cover it. 

Does reverse mortgage counseling guarantee approval?

No, completing reverse mortgage counseling doesn’t guarantee approval. It’s an educational step, not a rubber stamp for your loan. The counseling ensures you understand the product, but your lender will still evaluate your financials, home equity, and other criteria before approving the reverse mortgage. 

What if a reverse mortgage isn’t in your best interest?

Your counselor isn’t legally allowed to tell you you shouldn’t move forward with a reverse mortgage. Instead, their job is to discuss the alternatives with you so you can make an informed decision. 

Depending on your situation, these alternatives could include other financing options or social services. You then must weigh these options and decide how to proceed—whether to move forward with a reverse mortgage or explore other alternatives.

Where to get reverse mortgage counseling

You can use HUD’s online database to find a list of approved reverse mortgage counselors. This database allows you to search by state or zip code to find a counselor. 

You can also call HUD’s housing counselor referral line at 800-569-4287 to find a local agency. 

Counseling fees vary by state and agency but often range from $125 to $200. If you’re concerned about the cost of counseling, don’t let that stop you. Many agencies will let you pay the fee after closing on your loan if you can’t pay upfront.

How to prepare for reverse mortgage counseling

By law, you must receive materials from your counselor at least one day before your counseling session. These materials include: 

• A handout called “Preparing For Your Counseling Session”
• A printout that explains how to compare loans
• A copy of the total actual loan cost (TALC) calculation
• A loan amortization schedule
• A booklet published by the National Council on Aging (NCOA), “Use Your Home to Stay Home—A Guide for Homeowners Who Need Help Now”

You’ll get the most out of your reverse mortgage counseling session if you come prepared. Review the handouts beforehand to discuss any unclear points during your counseling.

Also, jot down questions you have about reverse mortgages. These might include:

1. What are the pros and cons specific to my financial situation?
2. How does a reverse mortgage affect my heirs?
3. What are the associated fees and interest rates?
4. How could a reverse mortgage influence my other benefits, such as Social Security or Medicare?
5. What happens if I change my mind and want to back out of my reverse mortgage?

You’ll also discuss your current income, expenses, and debts with your counselor, so it may be wise to have any bank statements with you to aid in this conversation. 

Approach the session with an open mind but with a critical eye. This is about your financial future, so the more prepared and informed you are, the better the outcomes of the counseling session will be.

Ask the expert

Crystal Rau

CFP®

A reverse mortgage may seem like an easy way to provide additional income during retirement. However, many don’t realize the risks involved when setting one up. It’s essential to have those discussions early on with a spouse or other family members, especially if a surviving spouse plans on remaining in the home. Counseling can provide the education and insights to make you more aware of other options that may benefit your situation.

Alternatives to a reverse mortgage

A reverse mortgage might seem attractive, but many alternative financial products are available. Each has its benefits, drawbacks, and unique features worth considering. 

Here’s a closer look at several options.

Home equity loan

A home equity loan allows you to borrow a lump sum against equity you’ve built up in your home, much like a reverse mortgage. The key difference between it and a reverse mortgage is that you must repay the home equity loan in fixed monthly payments. 

The benefit of a home equity loan is the certainty of a fixed interest rate; however, inability to meet the repayments could lead to foreclosure.

Home equity line of credit (HELOC)

A HELOC differs from a reverse mortgage in that it extends a line of credit based on your home’s equity, rather than disbursing a single lump sum. Like a credit card, you only pay interest on what you use. This can provide more flexibility than a reverse mortgage, but many come with variable interest rates, which might increase over time.

Downsize your home

Downsizing offers a way to free up cash without taking on a loan. You might extract equity and reduce your living expenses by selling your current home and moving into a smaller one. Unlike a reverse mortgage, there’s no loan to repay. 

A downside is the potential emotional and physical stress of moving from a long-term home.

Rental income

Renting part or all of your home could provide an income stream similar to a reverse mortgage but without long-term debt or potential foreclosure worries. However, being a landlord comes with its own responsibilities and liabilities—plus your income could be irregular. You must also have a separate primary place of residence.

Property tax deferral programs

Look into whether your state offers property tax deferral programs for seniors, which could reduce your expenses, unlike a reverse mortgage, which increases them. However, you must eventually repay deferred taxes, often with interest—so it’s only a temporary solution.

State and local assistance programs

State and local assistance programs can offer various forms of help, such as assistance with utility bills or property taxes, which can ease financial pressures without requiring you to take on a loan. However, eligibility requirements can be strict, and the assistance may not be enough to cover all your expenses.

Life insurance policy loans or sales

Borrowing against your life insurance policy or selling it can offer a quick cash infusion—but at the expense of reducing the death benefit or surrendering the policy altogether. This might leave your beneficiaries with less support in the future.

Family loans or private agreements

Family loans or private agreements can offer greater flexibility and lower costs than a reverse mortgage. However, if handled improperly, they can also lead to family conflicts or legal issues. It’s crucial to seek legal advice and to record any agreement in writing.