From Sun City to Sun Lakes — more and more people in Arizona are turning 62 every day. As the baby boomer generation reaches retirement one home financing option has become more popular than ever — The Reverse Mortgage.
Have you or a loved one considered a reverse mortgage?
Are you intrigued by what you hear about them, but afraid that it sounds just too good to be true?
You’re not alone, it seems that I have had more and more people asking me lately about what reverse mortgages are and how they work — because getting the right reverse mortgage set up can give a much needed lifeline to seniors who may be struggling to make ends meet every month.
How does a reverse mortgage work?
A reverse mortgage is a loan that eliminates your monthly mortgage payment and uses the equity built up in it to give the homeowner a monthly income, a line of credit, or cash at closing to pay off bills, or any combination of the above.
There are many different types of reverse mortgages but in my opinion, none as good as the FHA backed Reverse Mortgage — which is also called “The Home Equity Conversion Mortgage” or HECM for short.
This program has become more and more popular due to the increase in home prices (equity available) over the last decade and the aging demographics of America.
FHA HECMs Versus Other Reverse Mortgages – What’s better?
HECM loans generally provide the largest loan advances of any reverse mortgage. HECMs also give you the most choices in how the loan is paid to you, and you can use the money for any purpose. For example, you can take the money in a lump sum, you can take it and put it on a credit card (which pays you interest) and draw on the money anytime you would like or you can take the money in monthly installments.
The FHA tells HECM lenders how much they can lend you, based on your age and your home’s value. The HECM program limits your loan costs, and the FHA guarantees that lenders will meet their obligations. Lenders can always give you the maximum cash available to you.
To be eligible for a HECM loan:
- You, and any other current owners of your home, must be aged 62 or over, and live in your home as a principal residence
- Your home must be a single-family residence in a 1- to 4-unit dwelling, a condominium, or part of a planned unit development (PUD). Some manufactured housing is eligible, but cooperatives and most mobile homes are not.
- Your home must meet HUD’s minimum property standards, but you can use the HECM to pay for repairs that may be required.
- You must discuss the program with a counselor from a HUD-approved counseling agency.
Questions about Repaying a Reverse Mortgage and in particular the HECM?
One common question I get when talking about reverse mortgages is “when/how do I have to repay the reverse mortgage?”
As with most reverse mortgages, you must repay a HECM loan in full when the last surviving borrower dies or sells the home. There are also a few other scenarios that may happen where it may become due such as:
- You allow the property to deteriorate, except for reasonable wear and tear, and you fail to correct the problem.
- All borrowers permanently move to a new principal residence.
- The last surviving borrower fails to live in the home for 12 months in a row because of physical or mental illness.
- You fail to pay property taxes or hazard insurance, or violate any other borrower obligation.
As always, I am available for any other questions you may have about HECMs or any other FHA financing.