The Home Equity Conversion Mortgage (HECM) is Federal Housing Administration's (FHA) reverse mortgage program which enables homeowners to withdraw some of the equity in their home converting a portion of the equity into cash. The equity that builds up over the years of mortgage payments is paid back to the homeowner. 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. This plan gives older Americans greater financial security and the ability to manage unexpected medical expenses, make home improvements, and more. A reverse mortgage can also be used 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.
Who qualifies for an FHA HECM reverse mortgage?
To be eligible for a FHA HECM, the FHA requires that the homeowner be 62 years of age or older, own the home outright, or have a low mortgage balance that can be paid off at closing, occupy the property as the principal residence, not be delinquent on any federal debt, and participate in a consumer information session given by an approved HECM counselor. Contact a Loan Officer today for more information on HECM consoling and other reverse mortgage eligibility requirements.
What types of homes are eligible for a reverse mortgage?
To be eligible for a reverse mortgage, the home must be 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.
What are the financial requirements for a reverse mortgage?
No income or credit qualifications are required of the borrower on a reverse mortgage. No repayment is required as long as the property is the borrower’s primary residence. The borrower must not be delinquent on any federal debt. The closing costs may be financed in the mortgage.
How much money can a borrower get for their home?
The amount a borrow can get depends on the borrowers age, the current interest rate, and the appraised value of the home or FHA’s mortgage limits in the area, whichever is less. The more valuable the home, the older the borrower, the lower the interest, the more can be borrowed. An online calculator like the one on the AARP.org website can be used to get an idea of what you may be able to borrow.
AARP.org Calculator: http://rmc.ibisreverse.com//rmc_pages/rmc_aarp/aarp_index.aspx
How will the cash be repaid to the lender?
As long as the borrowers live in the house, keeps the taxes and insurance current and maintains the property the loan does not need to be repaid. When the borrower sells the home the estate will repay the cash the borrower received from the reverse mortgage plus interest and other fees to the lender. The remaining equity, if any, will go to the borrower or to the heirs.
How will the borrower receive reverse mortgage payments?
| Tenure |
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Equal monthly payments as long as the borrower lives and continues to occupy the property as a principal residence. |
| Term |
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Equal monthly payments for a fixed period of months. |
| Line of Credit |
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Unscheduled payments or installments, at times and in amounts of the borrowers choosing until the line of credit is exhausted. |
| Modified Tenure |
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Combination of line of credit with monthly payments for a fixed period of months selected by the borrower. |
Find more info about Home Equity Conversion Mortgages for Seniors at the U.S. Department of Housing and urban Development website:
http://www.hud.gov/offices/hsg/sfh/hecm/hecmabou.cfm
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