What is reverse mortgage counseling?

Reverse mortgages can be dangerous. For example, reverse mortgages reared their ugly heads when the real estate market collapsed in 2007, and homeowners were left underwater—owing more to lenders than their homes were worth. A reverse mortgage may:

• Encourage borrowers to take out more funds than they actually need.
• Lead to borrowers having less money to pull from later in life.
• Cause borrowers to earn less on invested proceeds than they’re paying in interest on the loan.
• Lead borrowers to expose their money to risky investments.
• Increase the borrowers’ likelihood of being targeted for scams.

The above dangers are some of the reasons why counseling from a HUD-approved reverse mortgage counseling agency is required before you can do a reverse mortgage.

Reverse Mortgage Requirements

Getting counseling from a HUD-approved reverse mortgage counseling agency is just one of the requirements you have to meet before being able to get a reverse mortgage. There are also age requirements and standards your home must meet.

• You must be at least 62 years old.
• The home you plan to do the reverse mortgage on must be your primary residence.
• You must either own the home outright or be able to pay off the remaining balance on the mortgage by the time you close on the reverse mortgage (you can use the reverse mortgage to pay it off).
• You cannot owe any federal debt, such as federal student loans, by the time you close on the reverse mortgage (you can use the reverse mortgage to pay it off).
• Your home must be in good shape.
• You must be able to pay ongoing property costs, such as property taxes and insurance, along with maintenance and repair costs, either with your own money or proceeds from the reverse mortgage.

Once you meet these requirements for a reverse mortgage, you can look for a reverse mortgage counselor to assist you in the process.

What Does a Reverse Mortgage Counselor Do?

A reverse mortgage counselor can help you determine if getting a reverse mortgage will be beneficial and, if so, how to structure it. They can also assist you with mitigating the damage associated with a reverse mortgage gone bad. Having someone who is both knowledgeable and experienced in your corner certainly pays big dividends when it comes to doing what’s best for your wallet and garnering some much-needed peace of mind.

Reverse Mortgage Counseling Cost

Reverse mortgage counseling costs vary, but you’ll typically have to pay $125 to $200 at the counseling session. If you are facing financial hardship, such as going through foreclosure or bankruptcy, or receiving hospice care, you can ask for a fee reduction or have the payment delayed until you close on your reverse mortgage. You can also have the payment delayed if your income falls below 200% of the federal poverty guidelines. 

Reverse Mortgage Counseling Scams to Avoid

What you need to be careful about with reverse mortgage counseling are the shady companies and professionals that try to position themselves as consumer advocates but are really interested in taking advantage of people who are thirsty for a simple fix to their complex financial problems. Seniors are a particularly vulnerable group, given the fact that they have been building equity in their homes for a longer period of time, as well as the cognitive losses one naturally sustains as they age.

Researching companies online and checking out their accreditation status with major industry watchdog groups like the Better Business Bureau and the National Foundation for Credit Counseling will enable you to avoid falling for any traps.

To learn more, check out WalletHub’s guide on reverse mortgages.