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Frequently Asked Questions about Reverse Mortgages
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 us at (888) 781-4555. 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 or fail to meet the obligations of the mortgage. 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.
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, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you may borrow.
With a HECM, you don't make monthly principal and interest payments, the lender pays you according to the payment plan you select. 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. When does my loan become due and payable?
A HECM loan must be repaid in full when you die or sell the home. The loan also becomes due and payable if:
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:
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.
10. How do I receive my payments?
You have five options:
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 or fail to meet the obligations of the mortgage. 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.
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, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you may borrow.
With a HECM, you don't make monthly principal and interest payments, the lender pays you according to the payment plan you select. 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. When does my loan become due and payable?
A HECM loan must be repaid in full when you die or sell the home. The loan also becomes due and payable if:
- You do not pay property taxes or hazard insurance or violate other obligations.
- You permanently move to a new principal residence.
- You, or the last borrower, fail to live in the home for 12 months in a row. An example of this situation would be if you (or the last borrower) were to have a 12-month or longer stay in a nursing home.
- You allow the property to deteriorate and do not make necessary repairs.
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:
- Age of the youngest borrower
- Current interest rate
- Lesser of the appraised value of your home, the HECM FHA mortgage limit for your area or the sales price
- The initial Mortgage Insurance Premium (MIP) option you choose (2% HECM Standard option or .01% HECM Saver option)
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.
10. How do I receive my payments?
You have five options:
- Lump Sum - recieve all finds at the close of the loan.
- 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.
Consumer Education
Facing the reality of retirement can be challenging. If you are a homeowner 62 years of age or older, with moderate to significant equity in your home; a reverse mortgage may be right for you.
The HECM (Home Equity Conversion Mortgage); is a federally insured reverse mortgage program and is the most prominent reverse mortgage product in the market. There are a few program options available under the FHA insured HECM Program; they are as follows:
The HECM (Home Equity Conversion Mortgage); is a federally insured reverse mortgage program and is the most prominent reverse mortgage product in the market. There are a few program options available under the FHA insured HECM Program; they are as follows:
Monthly Adjustable
This is an adjustable rate program with a varying margin added to the index. The rate adjusts on a monthly basis and is tied to the LIBOR (London Interbank Offered Rate) plus applicable margin.
Fixed Rate
This is a fixed rate program. This program requires that a borrower takes all proceeds available cash out in a lump sum at closing. You can even purchase a home using a Reverse Mortgage ** Certain restrictions apply ** Most costs associated with a reverse mortgage can be financed into the loan; this means that they can be paid from the proceeds of your reverse mortgage transaction. Unlike traditional mortgages, there are no payments required back to the lender until the last surviving borrower on title no longer occupies the home as their primary residence.
Get Started The Reverse Mortgage Process:
» Awareness
Customer learns about Reverse Mortgage or particular product from an article, website, commercial, family or friend.
» Action
Contact a Reverse Mortgage Specialist and review the options that best suit your financial needs.
» Counseling
Counseling is mandatory under all Reverse Mortgage products and programs offered. Counseling is completed by an unbiased 3rd party HUD approved agency.
» Application
Once your counseling has been completed consult with your Reverse Mortgage Specialist about setting up a time to go over your loan application and disclosures in detail.
» Processing
Your loan will be reviewed and closely looked at to ensure your property is in decent condition and that there are no outstanding items that would pose a risk to the lender. Once all items have been “cleared” by Underwriting you loan will move to the next and final phase.
» Underwriting
Your loan will then enter the processing stage, this is where your appraisal will be ordered, title, and any other pertinent information to prepare you loan for Underwriting.
» Closing & Disbursement
Signing date, time and place will be scheduled with you for finalization of all documents and payment plans that have been selected. Once signing has been completed, you will have 3 business days after signing to cancel the loan, if you should choose to do so. After this time has passed, your funds are disbursed or set up depending on which payment option you have chosen.
Customer learns about Reverse Mortgage or particular product from an article, website, commercial, family or friend.
» Action
Contact a Reverse Mortgage Specialist and review the options that best suit your financial needs.
» Counseling
Counseling is mandatory under all Reverse Mortgage products and programs offered. Counseling is completed by an unbiased 3rd party HUD approved agency.
» Application
Once your counseling has been completed consult with your Reverse Mortgage Specialist about setting up a time to go over your loan application and disclosures in detail.
» Processing
Your loan will be reviewed and closely looked at to ensure your property is in decent condition and that there are no outstanding items that would pose a risk to the lender. Once all items have been “cleared” by Underwriting you loan will move to the next and final phase.
» Underwriting
Your loan will then enter the processing stage, this is where your appraisal will be ordered, title, and any other pertinent information to prepare you loan for Underwriting.
» Closing & Disbursement
Signing date, time and place will be scheduled with you for finalization of all documents and payment plans that have been selected. Once signing has been completed, you will have 3 business days after signing to cancel the loan, if you should choose to do so. After this time has passed, your funds are disbursed or set up depending on which payment option you have chosen.
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