Reverse mortgages
are becoming popular in America. HUD's Federal Housing Administration (FHA) created
one of the first. The Home Equity Conversion Mortgage (HECM) is FHA's reverse
mortgage program which enables you to withdraw some of the equity in your home.
The HECM is a safe plan that can give older Americans greater financial security.
Many seniors use it to supplement social security, meet unexpected medical expenses,
make home improvements and more. You can receive free information about reverse
mortgages in general by calling AARP toll free at (800) 209-8085. Since your home
is probably your largest single investment, it's smart to know more about reverse
mortgages, and decide if one is right for you!
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion
of the equity in your home into cash. The equity that built up over years of home
mortgage payments can be paid to you. But unlike a traditional home equity loan
or second mortgage, no repayment is required until the borrower(s) no longer use
the home as their principal residence. FHA's HECM provides these benefits. You
can also use a HECM to purchase a primary residence if you are able to use cash
on hand to pay the difference between the HECM proceeds and the sales price plus
closing costs for the property you are purchasing.
2. Can I qualify for FHA's HECM reverse mortgage?
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years
of age or older, own your home outright, or have a low mortgage balance that can
be paid off at closing with proceeds from the reverse loan, and you must live
in the home. You are further required to receive consumer information from an
approved HECM counselor prior to obtaining the loan. You can contact the Housing
Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of
a HUD-approved counseling agency and a list of FHA-approved lenders within your
area.
3. Can I apply if I didn't buy my present house with FHA mortgage insurance?
Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your
new FHA HECM will be FHA-insured.
4. What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family home or a 1-4
unit home with one unit occupied by the borrower. HUD-approved condominiums and
manufactured homes that meet FHA requirements are also eligible.
5. What's the difference between a reverse mortgage and a bank home equity
loan?
With a traditional second mortgage, or a home equity line of credit, you must
have sufficient income versus debt ratio to qualify for the loan, and you are
required to make monthly mortgage payments. The reverse mortgage is different
in that it pays you, and is available regardless of your current income. The amount
you can borrow depends on your age, the current interest rate, and the appraised
value of your home or FHA's mortgage limits for your area, whichever is less.
Generally, the more valuable your home is, the older you are, the lower the interest,
the more you can borrow.
You
don't make payments, because the loan is not due as long as the house is your
principal residence. Like all homeowners, you still are required to pay your real
estate taxes, insurance and other conventional payments like utilities. With an
FHA HECM you cannot be foreclosed or forced to vacate your house because you "missed
your mortgage payment."
6. Can the lender take my home away if I outlive the loan?
No. You do not need to repay the loan as long as you or one of the borrowers continues
to live in the house and keeps the taxes and insurance current. You can never
owe more than the value of your home at the time you or your heirs sell the home.
7. Will I still have an estate that I can leave to my heirs?
When you sell your home, you or your estate will repay the cash you received from
the reverse mortgage plus interest and other fees, to the lender. The remaining
equity in your home, if any, belongs to you or to your heirs.
8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and
the appraised value of your home or FHA's mortgage limits for your area, whichever
is less. Generally, the more valuable your home is, the older you are, the lower
the interest, the more you can borrow. You can use an online
calculator like the one on the AARP website to get an idea of what you may
be able to borrow.
9. Should I use an estate planning service to find a reverse mortgage?
FHA
does NOT recommend using any service that charges a fee for referring a borrower
to an FHA lender. FHA provides this information free, and HUD-approved housing
counseling agencies are available for free or at very low cost, to provide information,
counseling, and a free referral to a list of FHA-approved lenders. Search
online or call (800)
569-4287 toll-free, for the name and location of a HUD-approved housing
counseling agency near you.
10. How do I receive my payments?
You have five options:
- Tenure - equal monthly payments as long as at least one borrower lives
and continues to occupy the property as a principal residence.
- Term
- equal monthly payments for a fixed period of months selected.
- Line
of Credit - unscheduled payments or installments, at times and in amounts of your
choosing until the line of credit is exhausted.
- Modified
Tenure - combination of line of credit with monthly payments for as long as you
remain in the home.
- Modified
Term - combination of line of credit plus monthly payments for a fixed period
of months selected by the borrower.