Many seniors are searching for more information about reverse mortgages and with the FHA-insured HECM Reverse Mortgage, FHA has done a nice job of putting some information out on their website about it.
Here is an parahprased list of the top 10 things HUD wants seniors to know about the HECM Reverse Mortgage program:
1. What is a reverse mortgage?
A reverse mortgage is a type of FHA-insured loan that allows seniors to turn their home equity into cash. The equity can be paid to you in various ways (a lump sum, in payments or a line of credit) and you don’t have to pay it back until you no longer live in the home as your principal residence.
FHA’s reverse mortgage program provides these benefits and is also federally-insured so you won’t have to worry about any bank failures impacting your payments.
2. Can I qualify for a HUD reverse mortgage?
The FHA reverse mortgage program requires that you live in your home, have equity in your home and are age 62 or older. Credit scores, income or assets are not taken into account when qualifying for a reverse mortgage. Prior to closing, you will also need to attend a counselling session with an FHA approved counselor (aproximately an hour) who will be available to answer any questions you have about a reverse mortgage.
3. Can I apply if I didn’t buy my present house with FHA mortgage insurance?
Yes. It doesn’t matter what kind of mortgage you currently have on the house – or no mortgage at all.
4. What types of homes are eligible?
First, you must live in the property as your primary residence. Second, your home must be a single family dwelling or a two-to-four unit property. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.
5. What’s the difference between a reverse mortgage and a bank home equity loan?
In order to qualify for a home equity loan, you will need to have sufficient income, assets and credit scores. With a reverse mortgage, you can qualify as long as you are 62 or older, live in the property and have significant equity in the property.
If you select the “line of credit” option with a reverse mortgage, both a reverse mortgage and a home equity line of credit will allow you access to your money in much of the same way.
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 your home’s value.
7. Will I still have an estate that I can leave to my heirs?
When you sell your home or no longer use it for your primary residence, 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. None of your other assets will be affected by HUD’s reverse mortgage loan. This debt will never be passed along to the estate or 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.
9. Should I use an estate planning service to find a reverse mortgage?
HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders.
In order to get an FHA-insured reverse mortgage, you will need to work with an FHA approved lender and counselor. No estate planning services should be needed.
10. How do I receive my payments?
There are five options to receive your money. The most popular choices are probably “tenure” and “line of credit” and the least popular is “lump sum” because getting a lump sum can often lead to a loss of medicaid eligibility.
The five options are:
- 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 in installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted.
- Modified Tenure – combination of line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term – combination of line of credit with monthly payments for a fixed period of months selected by the borrower.