FREQUENTLY ASKED QUESTIONS
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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.
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! |
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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.
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.
10. How do I
receive my payments?
You have five options:
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Tenure
- equal monthly payments as long as at
least one borrower lives and continues
to occupy the property as a principal
residence.
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Term -
equal monthly payments for a fixed
period of months selected.
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Line
of Credit - unscheduled payments or
installments, at times and in amounts of
your choosing until the line of credit
is exhausted.
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Modified Tenure - combination of line of
credit with monthly payments for as long
as you remain in the home.
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Modified Term - combination of line of
credit plus monthly payments for a fixed
period of months selected by the
borrower.
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