Are You Ready For Reverse Mortgage Counseling?

Posted by Charles D

January 10, 2009

Reverse Mortgage or the Home Equity Conversion Mortgage

Reverse mortgage counseling is primarily for homeowners who are seriously interested in applying for a federally-insured or proprietary reverse mortgage. Specific types of reverse mortgages are discussed in Home Made Money, a publication by the American Association of Retired People (AARP). Reverse mortgage counseling is a legal requirement to become eligible for a federally-insured reverse mortgage, which is also known as a Home Equity Conversion Mortgage (HECM). This counseling is highly recommended for anyone considering a proprietary reverse mortgage. The counseling takes at least one hour, and may require more than one session.

Are you ready for this formal counseling process? Use the checklist below to help you decide.

All the Options:
Yes [ ] No [ ] Have you considered all your options?

Yes [ ] No [ ] Have you seriously explored the other choices and looked into the low-cost “single-purpose” reverse mortgages discussed in Home Made Money?

Are You Eligible?
Yes[ ] No [ ] Are you and all other owners of your home at least 62 years old?
Yes[ ] No [ ] Does at least one owner live in the home at least six months out of the year?
Yes[ ] No[ ] Is the home a single family residence, duplex, triplex, or 4-unit residence?

If you answered “Yes” to each question, then most likely you are eligible for a federally-insured reverse mortgage.
If you answered “No” to the last question, you may still be eligible if:
• you live in a HUD-approved condominium or planned unit development (PUD),
• or you live in certain types of manufactured housing.
In these cases, a reverse mortgage lender can help you determine if you are eligible. See Home Made Money for information on finding these lenders.

Could You Get Enough Money?
Yes[ ] No[ ] Could a reverse mortgage give you the amount of money you need?
Refer to Home Made Money for a rough idea of the amount you could receive. (The expected interest rate on HECM loans has been about 7% or less for the past few years.) You can get a better estimate from the online calculator at: www.aarp.org/revmort/.

Anyone with a computer and internet access can use this free calculator. Here are a few things to keep in mind: If you now owe any money on a debt against your home, you would have to pay off the full amount in order to get a reverse mortgage. However, you could use money from the reverse mortgage to do that. For example, if you owe $10,000 on a home equity loan and could get $50,000 from a reverse mortgage, you could use $10,000 from the reverse mortgage to pay off the home equity loan. You would be left with $40,000 from the reverse mortgage.

If your home is worth a lot more than the average home in your county, or over $400,000, you might be able to get more than the estimated amount from a “proprietary” reverse mortgage. But the cost of these loans is likely to be much greater as well - as explained in Home Made Money.