What Happens When You Attend a HUD-Approved Agency Counseling Session?
One of the requirements all applicants have to meet is a counseling session with an approved HUD financial advising entity, typically a trained professional who can teach people about all the details of a reverse mortgage and has no profit motive in the process. Here is what you can expect at your counseling session.
What Is a HUD-Approved Agency?
Not every financial professional, broker or advisor can provide HUD counseling. The HUD program requires that the counseling entity meet specific requirements and has a HUD-approved agency status. The entities are then identified for the applicant that are closest to their area or region. An availability list for easy review can be found at: https://entp.hud.gov/idapp/html/hecm_agency_look.cfm
The key benefit of this counseling requirement is to make sure applicants understand the basics of a reverse mortgage, what their obligations are, and have opportunity to ask any questions about the process from a professional without worrying about biased information. The counseling entity has to be uninvolved with the loan application and mortgage approval process for the consumer to be a valid counseling entity.
Why Do I Need Reverse Mortgage Counseling?
Number one, the counseling is a mandated requirement from Housing and Urban Development (HUD). No one is allowed to be approved for a HUD-provided reverse mortgage unless they have completed the required counseling first as an applicant.
Secondly, even though people may think they understand how a reverse mortgage works, the session can be extremely valuable in confirming whether their knowledge is correct. Many folks have a good idea about a part of a process but fail to understand the entire system. And they also frequently make big decisions on their assumptions, which can be costly with a mistake they may not discover until many years later. So, the counseling is simply a way to help people make an informed decision whether the reverse mortgage is a good idea for their situation or if a different financial tool may work better.
What Should I Expect When I Attend A Counseling Session?
The counseling session approach is typically a one-to-one meeting in an approved counselor’s office. Many people expect a session to be a group meeting with other applicants, but this would dampen the ability for folks to ask key questions personal to their situation. So instead, individual meetings are used to allow good discussion of private situations and how different options would work out from the professional’s perspective.
There will likely be an educational piece on the Federal Housing Administration and how the government is involved with the reverse mortgage process.
Another required part will be the counselor providing an overview of the options available to an applicant and how some could work better for a given situation than others, from the consumer’s perspective. Integrated in this part is terminology and process explanation, going over key aspects of a reverse mortgage as well as how interest rates are applied.
Learn about FHA
HUD is a major player in the reverse mortgage market nationwide, providing the means for many seniors to utilize the equity in their homes to improve their daily living conditions, travel or deal with needed renovations due to new disabilities. It is no surprise that HUD’s reverse mortgage programs have become very popular and are commonly used across the country.
Compare Loans and Financial Tools
The financial modeling involved in the counseling helps applicants see how different tools work, how they generate costs, what the consumer can expect and when, and which program provides a better match of funding to the applicant’s need overall.
A Full Understanding of Terms and Conditions
Terms and conditions for loan applications tend to be the most confusing and least understood part of a reverse mortgage process. So a key area covered by counseling is the forms used, what language they are communicating, how they impact the loan, and what a consumer needs to understand clearly before signing. The conditions discussed include what happens when the consumer doesn’t follow through on obligations once the loan is closed. No one likes to hear bad things, but understanding consequences has a way of making folks think twice before they commit to a big obligation too quickly.
Discuss and Review Repairs
If the reverse mortgage is a single-use loan or to be used specifically for certain repairs or renovations, typically to address disabilities and easier mobility, the counselor will discuss these aspects in the session and how to make sure they get taken care of. Renovations are a common driver for reverse mortgages, and they do follow a specific process with lending, including which contractors may be used for the actual construction work.
Discuss which Payment Options Suites your Scenario
Because there are different reverse mortgage tools available, the counseling program will go over these options and how they work. Many times people realize they were looking at the wrong tool for their specific situation, and the counseling gets them back on the right track.
The point of financial advice provided in the counseling is to make sure an applicant understands all of his or her options, and that a reverse mortgage is not the only solution available. Some of this education is frequently provided through modeling and computer tools to show applicants what happens over time with their financial commitments. The session can be very specific to a person’s income and expense situation, identifying which loan funding method works for them: lump sum or an equity line of credit approach instead.
Answers to Your Questions
One of the most beneficial parts of the counseling session is the ability to ask specific, private questions about one’s finances and how they will work with reverse mortgage tools. When people discuss and think about their situation clearly and honestly, the counseling session provides its greatest benefit regarding reverse mortgage education.
Certificate of Completion
Once an applicant has finished the counseling session, he or she will be provided a certificate of completion. This is proof that the counseling has been received, and it needs to be provided during the HUD application process for the loan officer to know the criteria was met correctly. HUD-approved lenders won’t take someone’s word on this requirement; the certificate is a must.
How Long Will My Counseling Session Last?
If an applicant asks no questions the counselor will go through the required material, which usually takes about an hour. Most folks do have questions, and a session could go from one to two hours on average.
What Should I Bring To My HECM Counseling Session?
For the session to be effective, bringing the appropriate financial information specific to an applicant’s situation is ideal. That includes proof of all steady income, a general listing of assets for reference, a listing or spreadsheet of all regular and recurring liabilities, and information about the property where a person lives currently (valuation of the home). The counselor will take all of this information and put it into the modeling demonstrations to show how different options will turn out so that the applicant is fully informed about reverse mortgage impacts.
Always Talk To An Expert
No matter what, every consumer looking to be approved for any kind of real estate loan should always talk with a financial expert, even if just to make sure their understanding of the process is correct. Things change, laws get rewritten and requirements get updated. So assumptions from even just three years ago can be very different going forward.
*Reverse mortgages are loans offered to homeowners who are 62 or older who have equity in their homes. The loan programs allow borrowers to defer payment on the loans until they pass away, sell the home, or move out. Homeowners, however, remain responsible for the payment of taxes, insurance, maintenance, and other items. Nonpayment of these items can lead to a default under the loan terms and ultimate loss of the home. FHA insured reverse mortgages have an up front and ongoing cost; ask your loan officer for details. These materials are not from, nor approved by HUD, FHA, or any governing agency.