It's important to watch out for unscrupulous brokers who charge unnecessary counseling fees (reverse mortgage counseling is free through HUD) or exorbitant closing costs. As with any loan, reverse mortgage contracts can be confusing and may include hidden costs -- so read the fine print.

Another pitfall to keep in mind: Because Medicaid is based on income level, Medicaid recipients also need to make sure the additional income they receive from the reverse mortgage doesn't disqualify them for those government benefits.