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 additional free information about reverse
mortgages
in general by contacting the National Council on Aging at
(800)
510-0301 or downloading a free booklet, "Use
Your Home to Stay at Home," a guide for older
homeowners
who need help now. 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
also required
to receive consumer information free or at very low cost
from a
HECM counselor prior to obtaining the loan. You can find a
HECM
counselor online or by phoning (800) 569-4287.
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 and maintains the property.
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 HECM housing counselors 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.
