Reverse Mortgage Basics
SELECTING A COUNSELOR
To be eligible for a federally insured HECM (Home Equity Conversion Mortgage), you must discuss the loan with a counselor employed by a nonprofit or public agency approved by HUD (the U. S. Department of Housing and Urban Development).
But the counseling is free and can be very helpful. So using this service can be a good idea even if you are thinking about applying for some other type of reverse mortgage.
AARP Project Network
You may also request HUD-approved HECM counseling through the AARP Foundation’s Reverse Mortgage Education Project. In 2002 and 2004, the Project administered a national exam for HUD-approved HECM counselors, and selected the highest scorers to participate in its HECM counseling network. These counselors are required to use loan analysis and comparison software that meets the model specifications.They are also obliged to follow the Project’s counseling policies and procedures. Project counselors provide in-person counseling in their local areas, and counseling by telephone in other areas nationwide.
This counseling generally takes at least one hour. The Project’s counseling is funded by HUD and provided at no cost to you. Other HECM counselors may charge a fee.
Be Prepared
However you request counseling, prepare for it carefully. If you are interested in a HECM, make certain you are eligible by re-checking the eligibility criteria.
Before requesting counseling, thoroughly consider each of the decisions discussed in this section. Make a written list of your questions, concerns, and the additional information you need.
CONSIDERING ALTERNATIVES
Have you carefully considered the main alternatives to a HECM? Have you seriously looked into the other options discussed in Part 3? If not, you should do so before applying for a HECM. Even if you end up getting a HECM, combining it with another option may make more sense than not.
If you plan to sell and move anytime soon, you should consider a home equity loan and, if you live in one of the few areas that still have them, an “uninsured” reverse mortgage.
Other Loans
HECMs and proprietary reverse mortgages are most expensive if the loan is repaid within a few years after closing. These loans typically have substantial start-up costs, and guarantee that you can stay in your home for as long as you want. But if you know you are going to sell and move within a few years, you would be paying for something you are neither expecting nor likely to need. And that’s generally an expensive thing to do.
If you can qualify for a low-cost home equity loan and easily make the required monthly repayments, this option can be less costly than a HECM or a proprietary reverse mortgage. But before applying for a home equity loan, learn about the potential pitfalls in this market.
In some parts of Arizona, California, Massachusetts, and Minnesota, you can still get an “uninsured” reverse mortgage. These loans typically provide monthly advances only, and they must be repaid in full on a specific date.
These are the only reverse mortgages that do not permit you to remain in your home for as long as you choose. But if you definitely plan to sell and move before they become due, these loans may make sense for you. To the extent that such loans are still available, HECM counselors in these states generally can help you find them.
