Why is counseling required?
Federal rules require counseling so you hear how a reverse mortgage works from someone with nothing to sell. The counselor must be HUD-approved, and a non-borrowing spouse must be counseled too. The lender can't take your application until you've finished counseling and given it a copy of your counseling certificate.
A reverse mortgage is unlike a regular mortgage: you make no loan payments (you still pay taxes, insurance and upkeep), the balance grows, and the loan has to be repaid when you leave the home. The counseling rule is in HUD's regulations (opens in a new tab).
How do you find a HUD-approved counselor?
Call HUD at 800-569-4287, or search HUD's list of approved housing counseling agencies online. Your lender can also give you a list. You choose the agency — not the lender, and not a salesperson. Many agencies counsel by phone, so you don't have to be near their office to use them.
The CFPB (opens in a new tab) suggests bringing a family member or someone you trust to the session.
What does the counselor go over?
The counselor goes over how a HECM works, the costs upfront and over time, your duties as a homeowner, how it affects your family including a spouse not on the loan and your heirs, and other options such as selling and moving. At the end you get a certificate showing you've been counseled.
- How a HECM works — how much you might reach, how the balance grows, and when the loan comes due.
- The costs, upfront and over time. See what a reverse mortgage costs.
- Your duties — living in the home, paying property taxes and insurance, keeping it in repair.
- How it affects your family, including a spouse who isn't on the loan and your heirs.
- Other options, such as selling and moving, or local programs for older homeowners.
Keep a copy of your counseling certificate.
What does counseling cost?
Some agencies charge a fee, and the FTC says it is often around $125. The CFPB says an agency can't turn you away because you can't afford it. Ask about the cost when you call, and whether it can be paid from the loan if you go ahead. Counseling itself doesn't commit you to anything.
Sources: CFPB on counseling cost (opens in a new tab) and the FTC (opens in a new tab).
What should you ask the counselor?
Ask when the loan comes due if you move into assisted living, what happens to a spouse who isn't on the loan, how much you would owe after five or ten years, whether part of the loan could be set aside for taxes and insurance, whether it could affect your benefits, and whether selling and moving suits you.
- If I move into assisted living or a nursing home, when does the loan come due?
- What happens to my spouse if I die first and they aren't on the loan?
- How much will I owe after five or ten years if I take the money as a lump sum, a line of credit, or regular payments?
- Could the lender set aside part of the loan for taxes and insurance, and how much would that leave me?
- Could this affect any benefits I receive?
- Is selling and moving, or a local program, a better fit for me?
What warning signs should you watch for?
Watch for pressure to sign quickly or skip counseling, a contractor who suggests a reverse mortgage to pay for their repairs, anyone selling an annuity or investment to buy with the loan money, and anyone who says you can never lose your home. You can, if you don't pay property taxes and insurance or keep up the home.
- Pressure to sign quickly, or to skip or rush counseling. The FTC says (opens in a new tab) to walk away.
- A contractor who suggests a reverse mortgage to pay for repairs they want to do.
- Someone selling an annuity or investment to buy with the loan money. The CFPB warns (opens in a new tab) against these.
- Anyone who says you can never lose your home. You can, if you don't pay property taxes and insurance or keep up the home.
After closing you have three business days to cancel. To report a problem, contact the CFPB at (855) 411-2372, the FTC, or the Nevada Attorney General. More on your rights: CFPB guide (opens in a new tab).
More on this: Reverse mortgages (HECM)
