Reverse Mortgage Eligibility

  • All reverse mortgage borrowers must be 62 and older
  • Must own property and occupy as primary residence
  • Participate in an information counseling session
  • Must have sufficient equity in the property
  • Property must meet FHA property standards
  • Must maintain home with needed repairs, property taxes and insurance

Loan Amount Based On

  • Age of youngest borrower
  • Current interest rate
  • Lesser of appraised value or the FHA insurance limit
  • An Image Slideshow - Reverse Mortgage Educator
  • An Image Slideshow - Reverse Mortgage Educator
  • An Image Slideshow - Reverse Mortgage Educator

Funding Issues for Reverse Mortgage Counseling

One of the major requirements of a reverse mortgage is that the borrowers receive counseling from an independent 3rd party counseling service approved by FHA. This was part of the original design of the legislation, to make sure that seniors understand how a reverse mortgage works, since it is so different from a traditional mortgage. At a minimum, the borrowers need to understand the costs involved, and that even though monthly payments are not required, the principal balance is increasing every month, reducing their equity position.

Per Mortgagee Letter 2008-12, dated May 6, 2008,counseling agencies may charge a maximum of $125 for their services, which may be conducted over the phone or in person. However, per Mortgagee Letter 2011-09, dated February 4, 2011, HUD recognizes that costs for counseling have gone up, and $125 is no longer the cap. Agencies may charge whatever is "reasonable and customary." In practice this seems to mean a $150 cap for most agencies.

Many borrowers over this time have actually received counseling for free, because HUD has given grant money to some agencies for that purpose. Mortgagee Letter 2011-26, dated August 12, 2011, stipulates that the list of possible counseling agencies given to borrowers must include national/regional agencies that have received grant awards from HUD. The list must also include, if possible, offices within the borrower's state and at least one within reasonable driving distance. Although free counseling hasn't always been available to everyone, it has been helpful fo the many seniors who have been able to access it.

Unfortunately, in April 2011 Congress eliminated the $88 million given to HUD for all kinds of housing counseling, including for HECMs. These funds are supposed to run dry by October 1, 2011. Although various groups are lobbying to get the funds restored, it is unlikely given the current budgetary restraints. This means that costs will increase for many borrowers, and the quality and availability of counselors may also be affected.

 
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