If you are a homeowner age 62 or older and have paid off your mortgage or paid down a considerable amount, and are currently living in the home, you may participate in FHA’s Home Equity Conversion Mortgage (HECM) program. The HECM is FHA’s reverse mortgage program that enables you to withdraw some of the equity in your home. You choose how you want to withdraw your funds, whether in a fixed monthly amount or a line of credit or a combination of both.
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.
How the Program Works
There are many factors to consider before deciding whether a Reverse Mortgage is right for you. To aid in this process, you must meet with a government approved Reverse Mortgage counselor to discuss program eligibility requirements, financial implications and alternatives to obtaining a Reverse Mortgage and repaying the loan. Counselors will also discuss provisions for the mortgage becoming due and payable. Upon the completion of the Reverse Mortgage counseling, you should be able to make an independent, informed decision of whether this product will meet your specific needs. To find a Reverse Mortgage counselor please call (800) 983-2430 toll-free.
There are borrower and property eligibility requirements that must be met. If you meet the eligibility criteria, we will have you complete a reverse mortgage application, arrange for you to get a counselor. We will discuss other requirements of the Reverse Mortgage program, the loan approval process, and repayment terms.
- Be 62 years of age or older
- Own the property outright or paid-down a considerable amount
- Occupy the property as your principal residence
- Not be delinquent on any federal debt
- Participate in a consumer information session given by a HUD- approved HECM counselor
The following eligible property types must meet all FHA property standards and flood requirements:
- Single family home or 2-4 unit home with one unit occupied by the borrower
- HUD-approved condominium project
- Manufactured home that meets FHA requirements
Income, assets, monthly living expenses, and credit history may be verified. Timely payment of real estate taxes, hazard and flood insurance premiums may be verified.
Five Payment Plans to Choose From
- 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 an amount of your choosing until the line of credit is exhausted.
- Modified Tenure – combination of line of credit and scheduled 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.
You can change your payment plan option for a fee of $20.
Mortgage Amount Based On
The amount you may borrower will depend on:
- Age of the youngest borrower
- Current interest rate
- Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
- Initial Mortgage Insurance Premium–your choices are HECM Standard or HECM SAVER
You can pay for most of the costs of a HECM by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.
The HECM loan includes several fees and charges, which includes: 1) mortgage insurance premiums (initial and annual) 2) third party charges 3) origination fee 4) interest and 5) servicing fees. We can discuss which fees and charges are mandatory.
Frequently Asked Questions
Q: Can I lose my home?
A: You remain the owner of your home and can stay as long as you wish. As the homeowner, you must continue to pay home insurance, property taxes and continue with basic home maintenance during the loan period – that’s it. When the home is sold, the loan is repaid (including accrued interest and any fees) and any remaining equity goes to you or your heirs.
Q: How much can I borrow?
A: 3 factors are considered to calculate how much equity you can access:
- Age of the youngest borrower
- Home value
- Current interest rates
Although we use the home value you initially provide us to calculate the preliminary loan amount, an independent appraiser must visit your home to ascertain its actual value. We then re-calculate the loan amount according to this official home value. All this will be organized by your reverse mortgage professional. They can also answer any questions or concerns you may have.
Q: What if I have a mortgage already?
A: That’s absolutely fine. If you qualify, a reverse mortgage will first pay off your existing mortgage and then give you the remaining proceeds. In fact, many of our borrowers use a reverse mortgage for that purpose – to eliminate monthly payments on their traditional mortgage.
Q: Will my children lose their inheritance?
A: The loan is repaid once the last remaining borrower moves out of the home. Normally, the home is sold, the loan (including interest and any fees) is repaid, and any remaining equity goes to you or your heirs. If your children choose to keep the home, they can pay the loan back by using such financial tools as refinancing the reverse mortgage. If they choose to sell the home, they are provided up to 12 months to complete the sale.
Q: Do I have to make monthly payments?
A: No – there are never any monthly mortgage payments. However, payment of taxes, insurance and general upkeep of the home are the responsibilities of the homeowner. The loan becomes due when the youngest borrower permanently moves out of the home.
Below are common myths that are important for you to be aware of as you investigate the benefits of our product!
Myth 1: I’ve heard I won’t qualify for a reverse mortgage because of my limited income.
Fact: False. Many seniors who don’t qualify for traditional financing are eligible for a reverse mortgage.
Myth 2: If I take out a reverse mortgage the lender will own my home.
Fact: False. Homeowners still retain title and ownership to their homes during the life of the loan, and can choose to sell the home at any time. As long as the borrower continues to live in and maintain the home and property taxes and homeowners insurance are paid, the loan cannot be called due.
Myth 3: There are restrictions on how reverse mortgage proceeds may be used.
Fact: False. There are no restrictions. The cash proceeds from the reverse mortgage can be used for virtually any purpose and borrowers should be cautious of lenders attempting to cross sell other products. Many seniors have used reverse mortgages to pay off debt, help their kids, make ends meet or to have a financial reserve.
Myth 4: Only low-income seniors get reverse mortgages.
Fact: False. Although some seniors may have a greater need than others for the monthly proceeds or lump sum funds reverse mortgages offer, most simply prefer to be free of monthly mortgage payments. Without monthly mortgage payments, many homeowners find they can maintain their existing quality of life and build their savings to help with future expenses. A growing number of people who have no immediate need are taking out these loans so that they have a financial cushion for future expenses.
Myth 5: If I outlive my life expectancy, the lender will evict me.
Fact: False. Reverse mortgage lenders put no time limit on how long the borrower(s) can stay in their homes. Since homeowners still own the property, lenders cannot evict them as long as the borrower continues to live in and maintain the home, and property taxes and homeowners insurance are paid.
Myth 6: A reverse mortgage will affect my government benefits.
Fact: A reverse mortgage generally does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, any reverse mortgage proceeds that you receive would count as an asset and could impact Medicaid eligibility. To be sure, we recommend that potential borrowers consult their federal benefits administrators or financial advisors.
Myth 7: There are no objective advisors available to seniors trying to decide if a reverse mortgage suits their needs.
Fact: False. Borrowers are required to work with independent, third party counselors approved by the U.S. Department of Housing and Urban Development (HUD) in their local communities. This educational session helps them make the right decision for their unique situations.
Myth 8: My children will be responsible for the repayment of the loan.
Fact: If the borrower or their estate wants to retain the property, the balance must be paid in full. However, as long as the borrower or their estate sells the property to pay off the debt, there is no recourse if the HECM loan balance exceeds the home’s value at maturity. Any equity remaining in the property after the reverse mortgage is retired belongs to the borrower or their estate.
Myth 9: Reverse mortgage lenders take advantage of seniors.
Fact: Seniors who have been victims of reverse mortgage lending schemes are extreme exceptions and typically victims of unsavory lenders. As a consumer, you should only work with reputable lenders. Protect yourself by conducting as much research as possible by consulting government agencies, your financial advisors and NRMLA, the National Reverse Mortgage Lender’s Association.
Myth 10: I cannot get a reverse mortgage if I have an existing mortgage.
Fact: False. If your house isn’t paid off, the proceeds you receive from the reverse mortgage must first be used to pay off any existing mortgage.
Call us today to find out if a reverse mortgage is right for you!
*This material is not from HUD or FHA and has not been approved by HUD or a government agency.