An FHA reverse mortgage is insured by the Federal Housing Administration (FHA) and provides qualified homeowners aged 62 or older access to equity from their home to supplement their retirement income. As this type of loan carries with it particular risks, the FHA has mandated that all potential borrowers must go through counseling before they are eligible for a reverse mortgage.
Reverse mortgages are a complex financial product, and counseling helps prospective borrowers determine whether they are suitable candidates and if the loan is the optimal choice for them. In addition, the counseling requirement serves as a tool to protect vulnerable seniors from falling prey to predatory lenders, offering advice and education on the cost and terms of the mortgage. Borrowers may be liable to pay additional costs that come with a reverse mortgage, such as origination fees, servicing fees, mortgage insurance premiums, and closing costs, so it is important to be aware of all associated costs before taking out the loan.
FHA-approved counseling agencies provide unbiased guidance and education to potential borrowers about the risks and ramifications of a reverse mortgage. Counselors are required to discuss alternative financing options, such as segregated funds, lines of credit, and traditional home loans. They offer assistance in reviewing and completing the loan documents, and explain the rights and responsibilities of the borrower, such as payment of property taxes and hazard insurance.
The counseling process takes place in two parts. The first step is to review the decision with a qualified housing counselor, who should be able to answer any questions the borrower has about the loan, provide unbiased information, and explain the borrower’s rights and responsibilities. After the counseling session, the counselor will submit the HECM Counseling Certificate to the lender. Upon successful completion of the certification process, the borrower will be able to move forward with the reverse mortgage application.
In summary, FHA-approved reverse mortgages are a form of loan that is available to seniors aged 62 or older who wish to supplement their retirement income without depleting their savings. Borrowers must undergo counseling before applying for the loan, which is designed to protect those who may be vulnerable to predatory lenders and ensure that customers are aware of all associated costs. The counseling is done in two parts: one with a housing counselor, who will go over the details of the loan and answer any questions, and another with the lender, for whom the counselor will submit the HECM Counseling Certificate upon successful completion of the first stage.
This article was contributed on Sep 21, 2023
