Top 10
Things to Know if You're Interested in a HECM
Reverse Mortgage
Reverse Mortgages are
becoming popular in America. The U.S. Department of
Housing and Urban Development (HUD) created one of
the first. HUD's Reverse Mortgage is a
federally-insured private loan, and it's 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. 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 a homeowner
convert a portion of the equity in his or her home
into cash. The equity 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.
HUD's reverse mortgage provides these benefits, and
it is federally-insured as well.
2. Can I qualify for a
HUD reverse mortgage?
To be eligible for a HUD
reverse mortgage, HUD's Federal Housing
Administration (FHA) requires that the borrower is a
homeowner, 62 years of age or older; own your home
outright, or have a low mortgage balance that can be
paid off at the closing with proceeds from the
reverse loan; and must live in the home. You are
further required to receive consumer information
from HUD-approved counseling sources prior to
obtaining the loan.
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 HUD reverse mortgage will be a new FHA-insured
mortgage loan.
4. What types of homes
are eligible?
Your home must be a single
family dwelling or a two-to-four unit property that
you own and occupy. 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?
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 and other conventional payments
like utilities, but with an FHA-insured HUD Reverse
Mortgage, 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
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?
I've been contacted by a
firm that will give me the name of a lender for a
"small percentage" of the loan? HUD does NOT
recommend using an estate planning service, or any
service that charges a fee just for referring a
borrower to a lender! Sun Nations provides this
information without cost and HUD-approved housing
counseling agencies are available for free.
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 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.
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