Reverse Mortgages are becoming popular in
America. The U.S. Department of Housing and Urban Development (HUD)
created one of the first. HUD'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. You
can receive free information about reverse mortgages by calling AARP at:
1-800-209-8085, toll-free. 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!1. What is a reverse mortgage?
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(s) no longer use the home as
their principal residence. HUD's reverse mortgage provides these
benefits, and it is federally-insured as well.
2. Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD's Federal Housing
Administration (FHA) requires that the borrower is 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 must live in the home. You are further required to receive consumer
information from HUD-approved counseling sources prior to obtaining the
loan. You can contact the Housing Counseling Clearinghouse on
1-800-569-4287 to obtain 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. While your property must meet HUD minimum property standards, it
doesn't matter if you didn't buy it with an FHA-insured mortgage. Your
new HUD reverse mortgage will be a new FHA-insured mortgage loan.
4. What types of homes are eligible?
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. It is possible for condominiums to qualify under the
Spot Loan program. The home must be in reasonable condition, and must
meet HUD minimum property standards. In some cases, home repairs can be
made after the closing of a reverse mortgage.
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, other loan fees, 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 and other conventional payments like utilities, but with an
FHA-insured HUD Reverse Mortgage, 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! Nor is the loan due. 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 your home's
value.
7. 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 HUD's reverse mortgage
loan. This debt will never be passed along to the estate or heirs.
8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest
rate, other loan fees 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?
I've been contacted by a firm that will give me the name of a lender
for a "small percentage" of the loan? HUD does NOT recommend using an
estate planning service, or any service that charges a fee just for
referring a borrower to a lender! HUD provides this information without
cost, and HUD-approved housing counseling agencies are available for
free, or at minimal cost, to provide information, counseling, and free
referral to a list of HUD-approved lenders. Before you agree to pay a
fee for a simple referral, call 1-800-569-4287, toll-free, for the name
and location of a HUD-approved housing counseling agency near you.
10. 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.
- Term - equal monthly payments for a fixed period of months
selected.
- Line of Credit - unscheduled payments or in installments, at times
and in amounts of borrower's choosing until the line of credit is
exhausted.
- Modified Tenure - combination of line of credit with monthly
payments for as long as the borrower remains in the home.
- Modified Term - combination of line of credit with monthly
payments for a fixed period of months selected by the borrower.
