Taking A Reverse Mortgage - Counseling First
Reverse mortgages can help you stay in your home and even add to your monthly income. All you need is to be over 62 years of age and have sufficient equity in your home. Well, almost. Before you can take a HUD backed HECM reverse mortgage, you will need to go through a counseling session.
Mortgage counseling is usually reserved for high cost mortgage loans, especially to protect the consumer against predatory lending. A reverse mortgage may be easy to qualify for, but it is a complex loan. Consider how a reverse mortgage fits into your long-term retirement financial plans.
Before you take a reverse mortgage, make sure you know what they are. Reverse mortgages come with some important decisions that affect how much money you will have when it comes time to move out of your home. This can affect you, your spouse, or your heirs.
Quick Tip: Prepare yourself before taking a reverse mortgage. Then, get a reverse mortgage quote from a Bills.com mortgage provider.
Pre-Reverse Mortgage Counseling
Reverse mortgage counseling is an important step in taking a reverse mortgage. Here are the recommended steps:
- Prepare your finances: Prepare your budget and retirement finances, including a look at your assets and cash flow. Your home is an important asset and you will always have housing costs. Make sure you use your home’s equity wisely.
Define Financial and Personal Goals: Define the reasons that you want to take a reverse mortgage. A reverse mortgage can help you stay in your home and provide either a monthly draw, a lump sum, a line of credit (you draw funds when you need them) or a combination of those methods.
Here are some of the questions you should be asking yourself:
- Do you want to stay in your home? For how long?
- Do you need additional monthly income?
- Do you need money to pay off old debts?
- Do you want a lump sum to improve your home?
- How important is it for you to leave equity to your children?
- Learn about a reverse mortgage including how it works, and the pros and cons. Make sure you understand how the interest rate works, the best method to get your money, and how much fees you will need to pay.
- Get some reverse mortgage quotes.
- Make sure that your offer has real numbers, showing how much funds you have available under the different methods of drawing down money. The offers should also give you an idea of how much money you will owe in the future. (Be careful to review the assumptions used. It is easy to show that you will have tons of equity in your house if you assume that the property will increase in value by more than the combined interest rate and mortgage insurance).
What to Expect in Reverse Mortgage Counseling
Reverse Mortgage Counseling will help you understand how a reverse mortgage works, the pros and cons of a reverse mortgage, and how the reverse mortgage fits into your personal financial situation.
By having these materials available, you can expect to understand how much funds you will have available and how much you will owe on your house:
- Loan Comparison Page: This should include an estimate of the amount of loan available under different programs, and summarize interest rates and how adjustable rates work (for example margins and ceilings).
- Total Annual Loan costs: This should explain how much you will owe, how much fees you pay, and how much equity you will have, based on varying assumptions of house appreciation.
- Amortization Schedules: A year by year summary of how much interest accrued, how much line of credit you have available, and net equity (based on different projections of property value).
Quick Tip: Before your counseling session, get a reverse mortgage quote from a Bills.com mortgage provider.
Getting a Reverse Mortgage Counseling Session?
Almost all reverse mortgages today are HUD backed Housing Equity Conversion Mortgages (HECM). HUD requires that every borrower attends a reverse mortgage session and receives a reverse mortgage certificate, before making a full application.
A reverse mortgage counseling session costs about $125, although there are discounts for borrowers with hardship cases. There are different organizations that offer counseling. Make sure that they are on an approved HUD list.
Once you have your offers and documents, then you can get a reverse mortgage counseling session. Remember to make a list of all of your questions. The counselor will not give you legal or financial advice, but should be able to help you understand:
- How the reverse mortgage fits into your financial plan
- How the reverse mortgage works, including payment options and costs
- How the reverse mortgage can affect your spouse and your heirs.
- How the reverse mortgage can affect government aid, such as Medicare.
- Help you find solutions for heating and resources to meet your needs.
Counselors are informers, not financial planners. Once you complete a counseling session, you will receive a Certificate, which allows you to make a full application. By fully preparing yourself before looking for a reverse mortgage, you will get the most out of your counseling session.
Quick tip: Get a reverse mortgage quote from a Bills.com mortgage provider.