How to Find a Trustworthy Reverse Mortgage Advisor
How to Find a Trustworthy Reverse Mortgage Advisor

Eligible seniors age 62 and older can use a reverse mortgage to create income for retirement. However, before you can get a reverse mortgage, you must first complete an approved reverse mortgage consultation. This counseling session is designed to ensure that you understand the responsibilities and financial implications involved. Knowing what to look for can help you find a reputable reverse mortgage advisor.

Key points to remember

  • A reverse mortgage is a financial product that allows eligible homeowners to convert their equity into income.
  • HECMs (home equity conversion mortgages), the most common type of reverse mortgage, are backed by the federal government.
  • Homeowners must follow reverse mortgage advice before they can apply for a home equity conversion mortgage.
  • The Department of Housing and Urban Development offers online resources to help homeowners find a trusted reverse mortgage advisor.

How a Reverse Mortgage Works

A reverse mortgage allows homeowners to withdraw their equity, but it is not the same as a home equity loan or a home equity line of credit (HELOC). When a homeowner takes out a reverse mortgage, they can receive a lump sum or a series of payments that can be used for medical bills, daily living expenses, or pretty much anything else. Fees and interest accrue on the reverse mortgage balance, but no payments are due as long as the homeowner lives in the home. If the homeowner sells the home, moves out, or dies, the entire reverse mortgage balance becomes due.

A home equity conversion mortgage (HECM) is a federally backed reverse mortgage. This type of reverse mortgage requires homeowners to:

  • Be 62 or older
  • Own your home (or have paid off most of the mortgage)
  • Living in the house as your primary residence
  • Have the financial resources to pay for certain expenses, including property taxes, home insurance, HOA fees, upkeep, repairs, and upkeep
  • Not be overdue on federal debts
  • Attend HUD-approved counseling

Home equity conversion mortgages have fees and closing costs, including mortgage insurance premiums (MIP). The amount you can borrow may depend on the equity in your home, your age and current interest rates.

Important

Failure to pay property taxes and homeowners insurance on a timely basis could result in the entire balance of the reverse mortgage being due.

What is reverse mortgage advice?

The reverse mortgage consultation must be completed before a homeowner can apply for a home equity conversion mortgage. It’s up to you to choose a lender and schedule a meeting. The Department of Housing and Urban Development encourages in-person counseling sessions where possible, although it allows licensed counselors to offer sessions over the phone when a face-to-face meeting is not feasible.

HUD requires reverse mortgage counselors to discuss certain topics with homeowners. If you meet with a reverse mortgage advisor, you can expect to talk about:

  • Your financial needs and situation
  • Features of a reverse mortgage and how they work
  • Financial Responsibilities Associated with a Reverse Mortgage
  • Reverse mortgage costs, including closing costs, fees, interest and mortgage insurance
  • Tax implications of a reverse mortgage
  • Reverse Mortgage Alternatives
  • How to spot and avoid reverse mortgage scams and financial abuse by seniors

Reverse Mortgage Advisors may charge a fee for their services. HUD allows reverse mortgage advisers to set “reasonable and customary” fees, although they cannot charge a fee above the level of services provided.

So why is this advice necessary? Reverse mortgage advice is designed to ensure homeowners fully understand what they are agreeing to when taking out a reverse mortgage. For example, although the owner has no obligation to repay the balance of the reverse mortgage as long as he lives in the house, he could leave a debt to his heirs upon their death. If you’d rather not do this, you can consider another option to withdraw the equity instead.

Point

Purchasing a life insurance policy and naming heirs as beneficiaries can ensure that they will have the money to pay off a reverse mortgage balance after you leave.

How to Find a Trustworthy Reverse Mortgage Advisor

The easiest way to find a reputable reverse mortgage advisor near you is to search the U.S. Department of Housing and Urban Development’s (HUD) list of reverse mortgage advisors. In order to be included on this list, counselors must complete certain education and training as well as a background check. A HUD Reverse Mortgage Advisor can be located online or by phone at 1-800-569-4287.

If you want to connect with a counselor who offers phone meetings, you can also search HUD’s list of intermediaries who provide HECM counseling nationwide. This is a shorter list than the Reverse Mortgage Advisors list, but you can find reputable organizations to work with here if you are unable to schedule an in-person meeting.

Once you have scheduled a reverse mortgage counseling session, your advisor should provide you with an information package and other materials to help you prepare. These documents are designed to answer questions you may have about a reverse mortgage and provide an overview of the pros and cons. During the session, you’ll discuss the details of reverse mortgages and your finances to help you decide if getting one is right for you.

After the counseling session, you will receive a certificate of completion. You will need it to move forward with your HECM application. Your advisor can also follow up to see if you have any lingering questions about reverse mortgages.

To note

A reverse mortgage advisor may refuse an advisory certificate if they feel that a homeowner does not sufficiently understand how a reverse mortgage works.

What is HECM Consulting?

HECM counseling is a mandatory counseling session for homeowners who wish to obtain a home equity conversion mortgage. During this counseling session, the counselor will review the homeowner’s financial situation, discuss the features of reverse mortgages and their pros and cons, explain the costs of reverse mortgages, and outline the identifying characteristics of reverse mortgage scams.

Why is consultation required for reverse mortgages?

Reverse mortgages can have significant financial implications for homeowners and their heirs. Reverse mortgage advice ensures homeowners fully understand the benefits and risks so they can make an informed decision on whether a reverse mortgage is right for them.

How does a HECM loan work?

A home equity conversion mortgage works by allowing a homeowner to convert their equity into income. No payment is due for the reverse mortgage balance while the owner is using the property as their primary residence. If the homeowner sells the house, moves out or dies, the principal balance plus accrued fees and interest become payable immediately.

The essential

Reverse mortgages may suit some homeowners better than others. Completing reverse mortgage advice can help you decide if this is an option worth considering or if something like a home equity loan or HELOC might be more suitable. Connecting with a trusted reverse mortgage advisor is the first step, and HUD provides resources to make your search easier. Once you’ve completed the advice, you can move on to researching the best reverse mortgage companies to find a lender to work with.

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