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Reverse
Mortgages for Seniors FHA's Home Equity Conversion
Mortgage (HECM) |
Looking for housing options for you, an aging
parent, relative, or friend? Do some research first
to determine what kind of assistance or living
arrangement you need – is a reverse mortgage right
for you?
Senior homeowners age 62 and older can use
FHA-insured reverse mortgages to convert the equity
in their homes into monthly streams of income and/or
a line of credit to be repaid when they no longer
occupy the homes. The loan, commonly known as Home
Equity Conversion Mortgage or HECM, is with by a
lending institution such as a mortgage lender, bank,
credit union or savings and loan association.
Homeowners are required to receive consumer
education and counseling by an approved HECM
counselor so they can be sure this program meets
their needs.
HECM housing counselors will discuss program
eligibility, financial implications and alternatives
to obtaining a HECM plus provisions for the mortgage
becoming due and payable. Upon the completion of
HECM counseling, you as a homeowner should be able
to make an independent, informed decision of whether
this product will meet your needs.
Homeowners who meet the eligibility criteria can
complete a reverse mortgage application by
contacting a FHA-approved lending institution such
as a bank, mortgage company, or savings and loan
association. If you need assistance locating a
FHA-approved lender, you can request a listing of
FHA-approved lenders from the HECM counselor or use
HUD's searchable listing.
Borrower Requirements:
-
Must
be age 62 years of age or older
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Live
in your property as primary
residence
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- Participation in a consumer information
session given by a HUD-approved housing
counseling agency.
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Mortgage Amount Based On: |
- Age of the youngest borrower if more than
one
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- Lesser of appraised value or the FHA
insurance limit
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Financial Requirements:
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- No income or credit qualifications are required of
the borrower
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- No repayment as long as the property is the primary
residence
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- Closing costs may be financed in the mortgage
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Property Requirements: |
- Single family home or 1-4 unit home with one unit
occupied by the borrower (which can also be
FHA-approved condominiums or manufactured homes and
leased land)
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- Meet FHA property standards and flood requirements
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![[Photo: A senior couple]](images/2007-06-01f.jpg) |
How FHA's Reverse Mortgage Program
Works
Homeowners 62 and older who
have paid off their mortgages or have only
small mortgage balances remaining, and are
currently living in the home are eligible to
participate in FHA's reverse mortgage
program. The program allows homeowners to
borrow against the equity in their homes.
Homeowners can select from five payment
plans: |
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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 in
installments, at times and amounts of borrower's
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 the borrower remains
in the home.
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- Modified Term - combination of line of credit with
monthly payments for a fixed period of months
selected by the borrower.
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Homeowners whose
circumstances change may be able to
restructure their payment options for a
nominal fee of $20. Please consult your
lender for more information.
Unlike ordinary home equity loans, an FHA
reverse mortgage does not require repayment
as long as the home is the borrower's
principal residence. Lenders recover their
principal, plus interest, when the home is
sold. If any home equity remains after sale,
the remaining value of the home goes to the
homeowner, estate or heirs. You can never
owe more than your home's value.
If the sales proceeds are insufficient to
pay the amount owed, HUD will pay the lender
the amount of the shortfall. HUD's Federal
Housing Administration (FHA) collects an
insurance premium from all borrowers to
provide this coverage.
The amount a homeowner can borrow depends on
their age, the current interest rate, other
loan fees and the appraised value of the
home or the FHA's mortgage limits for the
area, whichever is less. Generally, the more
valuable your home is, the older you are,
and the lower the interest, the more you can
borrow.
There are no asset or income limitations on
borrowers receiving FHA's reverse mortgages.
There are also no limits on the value of
homes qualifying for an FHA reverse
mortgage. The value of the home will be
determined by an appraisal. However, the
amount that may be borrowed is derived from
the lower of the appraisal amount or FHA
mortgage limit for the area, which varies
from $200,160 to $362,790.
For Alaska, Guam, Hawaii and the Virgin
Islands, the FHA mortgage limits may be
adjusted up to 150% of the ceiling depending
on the area. The FHA limits usually increase
each year. As a result, owners of
higher-priced homes can't borrow any more
than owners of homes valued at the FHA
limit.
FHA's reverse mortgage program collects
funds from insurance premiums charged to the
homeowners. Homeowners are charged an
upfront insurance premium which is 2% of the
maximum claim amount that may be borrowed
plus a .5% annual premium which is paid on a
monthly basis for the life of the loan. |
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Common Questions About FHA Reverse Mortgages
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What is a
reverse mortgage?
Can I qualify for an FHA
reverse mortgage?
Can I apply if I didn't buy my
present house with FHA mortgage insurance?
What types of homes are
eligible?
What's the difference between a
reverse mortgage and a bank home equity
loan?
Can the lender take my home
away if I outlive the loan?
Will I still have an estate
that I can leave to my heirs?
How much money can I get from
my home?
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.
How do I receive my payments?
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What is a
reverse mortgage? |
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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 no longer uses the home as the
principal residence. FHA's reverse mortgage provides
these benefits, and it is federally-insured as well. |
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Can I qualify for an FHA reverse mortgage?
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| To be
eligible for a FHA reverse mortgage, FHA
requires that you (the borrower) 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 the closing
with proceeds from the reverse loan; and
live in the home. You also must receive
consumer information from a HUD-approved
counseling agency before obtaining the loan.
You can contact the Housing Counseling
Clearinghouse on (800) 569-4287 to get the
name and telephone number of an approved
counseling agency and a list of FHA approved
lenders within your area. |
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Can I apply if I didn't buy my present house with
FHA mortgage insurance? |
| Yes. It doesn't matter if your earlier mortgage was
not insured by FHA. Your new FHA reverse mortgage
will be a new FHA-insured mortgage loan. |
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What types of homes are eligible?
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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. Call
1-800-CALL-FHA and ask if your condominium project
is FHA-approved. Don't get discouraged if it isn't,
there is still an alternative. Ask your lender if it
is possible for to qualify your project under the
Spot Loan program. Do not sign any papers until you
are certain that your project qualifies. |
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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 in
relation to debt to qualify for the loan, and you
are required to make monthly mortgage payments. The
reverse mortgage is different because 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 the FHA's mortgage limits for your
area, whichever is less. Generally, the more
valuable your home is, the older you are and 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, hazard insurance and other
property charges. Unlike a traditional second
mortgage, with an FHA-insured HECM, you cannot be
foreclosed or forced to vacate your house because
you don’t make your principal and interest payments. |
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Can the lender take my home away if I outlive the
loan? |
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No! You do not need to repay the loan as long as you
or one of the borrowers continues to occupy the
property as the primary residence, keep the taxes
and insurance current and perform the other
obligations of the mortgage. |
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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 the FHA's reverse mortgage loan. This
debt will never be passed along to the estate or
heirs. |
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How much money can I get from my home?
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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, and the lower the
interest, the more you can borrow. |
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Should I use the services of a firm that will give
me the name of a lender for a “small percentage” of
the loan? |
| FHA does not recommend using an estate planning
service, or any service that charges a fee simply
for referring a borrower to a lender. FHA provides
this information without cost. HUD-approved housing
counseling agencies are available (for free or at
minimal cost) to provide consumer education
information, counseling, and a listing of
HUD-approved lenders for free. Call toll-free (800)
569-4287 for the name and location of a HUD-approved
housing counseling agency near you. |
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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.
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- Term - equal monthly payments for a fixed number of
months selected.
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- Line of Credit - unscheduled payments or in
installments, at times and amounts of your choosing
until the line of credit is exhausted.
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- Modified Tenure - combination of line of credit and
monthly payments for as long as the borrower remains
in the home.
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- Modified Term - combination of line of credit and
monthly payments for a fixed period of months which
you choose
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Reverse mortgages are becoming popular in America.
The FHA created one of the first. The FHA'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. For
information call U.S. Deptartment of Housing and
Urban development at 800-569-4287
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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