You may have heard about FHA reverse mortgages, or wondered if one is right for you. The Federal Housing Administration (FHA) has a reverse mortgage program called the Home Equity Conversion Mortgage (HECM). The HECM reverse mortgages can be a great way for seniors to gain financial security and supplement their Social Security.
What is a reverse mortgage?
The HECM reverse mortgage allows you to convert the home equity that you have built up over the years into payments to you. When you no longer are living in the home as your principal residence then the reverse mortgage is repaid though sale of your house.
The HECM has eligibility requirements. You must be at least 62 years old, have either no current mortgage on your home or owe a low balance that can be paid off at closing, and you must still be living in your home. You also must receive counseling from an approved HECM counselor before getting the loan.
Your home must also be eligible. You must own a single family home or a one to four unit home in which you occupy one unit. Also eligible are HUD approved condos and manufactured homes.
If you outlive your loan, you do not need to repay it as long as you or one of the borrowers continues to live in the house and pays the taxes and insurance. If you sell the home, you will never owe more than its value.
When you or your heirs do sell the home, money you received from the reverse mortgage along with interest and fees will be repaid to the lender. If there is any remaining equity it goes to you or your heirs.
Be aware there are origination fees, mortgage insurance premiums, and other closing costs. Origination fees for HECM reverse mortgages are currently set by law.
There are several types of payment options available.
Term – fixed monthly payments for a specific amount of time
Tenure – fixed monthly payments for as long as you live in your home
Line of Credit – you can draw from the loan proceeds at any time and in amounts of your choosing until the line of credit is used up
Modified Tenure – a combination of Line of Credit plus Tenure; payments last as long as you live in your home
Modified Term – a combination of Line of Credit plus Term; payments last for a fixed period of months you select
Reverse mortgage advances are tax-free and allow you to stay in your home and retain title to it. If you want to find out if a HECM reverse mortgage is right for you, contact the FHA.