The HUD Reverse Mortgage Program for Homeowners
Find out if a reverse home mortgage is for you
Are there disadvantages for a reverse home mortgage? read this and decide
There are more than a few homeowners that have an interest in reverse mortgage loans. With the majority of pitfalls in the mortgage crisis gripping the nation resolved, they are looking toward other avenues of making the equity in a home work in a positive manner. For anyone owning their home outright, find out what options on in the marketplace to use for an advantage when you are in this position.
The Home Equity Conversion Mortgage or HECM happens to be the Federal Housing Administration’s reverse mortgage program. The HECM lets a homeowner withdraw some of the equity a home has earned. There are a number of ways people use Reverse Mortgage Programs or HECM provided by HUD. This is information available for any one owning a home interested in the program.
What is a reverse mortgage?
A reverse mortgage is a home loan that lets a homeowner transfer a portion of the equity earned in a home into cash. Equity that has been produced from years of making mortgage payments is paid in cash to a homeowner with this method of mortgaging property. It does have some major differences when compared with other types of mortgages.
The difference between a traditional loan, home equity loan or even a secondary mortgage is a Home Equity Conversion Mortgage or HECM loan is one that borrowers don’t have to pay back until they no longer use the home as a primary residence or the borrower does not meet the commitments outlined by the HECM. A homeowner is able to use the HECM to buy another primary residence with cash on hand if that cash is the difference between HECM and the sale price and closing costs for a new home with penalty.
Who qualifies for an HECM?
In order to qualify for the program a homeowner must be at least 62 years old, the home must not have a current mortgage on it or if it does there are some restrictions. If the home has an extremely low mortgage balance which it is possible to pay off in full with the monies from the reverse loan, it is not counted against the applicant. They will still qualify under these conditions of a mortgage on their primary residence. The most important qualification is the home must be the primary residence of a homeowner which means they must live in the home.
Anyone interested in using the program is required to obtain the free or extremely low cost consumer information from a Home Equity Conversion Mortgage counselor before the loan is received. Counselors for the FHA HECM can be contacted online at the FHA website or by telephone at 800-569-4287.
What types of homes qualify for a reverse mortgage?
· Homes purchased with or without an FHA home mortgage
· Single family homes
· 2-4 unit houses with one unit occupied by the homeowner
· Manufactured homes meeting the FHA requirements
· HUD accepted condos
What is the difference in a home equity loan and reverse mortgage?
When a homeowner applies for a home equity loan or home equity mortgage or a what is referred to as a second mortgage ( it could also be a third one) their income is taken into account for eligibility. If income is not adequate the applicant will not meet the requirements for a line of credit or secondary mortgage. One of the primary differences in a reverse mortgage is income is not a factor. Regardless of what an applicant earns, working or retired, it is irrelevant in processing their application.
A reverse mortgage pays the homeowner minus the monthly loan principal or interest payments. They are still required to pay the local property taxes for the house along with utilities and any hazard or flood insurance required.
Why get a reverse mortgage with HECM?
Older Americans have been using reverse mortgages as a way to supplement their current income with financial security. These Americans generally have incomes that mainly consist of Social Security after they reach retirement age. A reverse mortgage for seniors allows them to meet unexpected uncovered medical bills, make home improvements and more financial security for unexpected expenses.
Some simply enjoy the idea of having the money in the bank for any expenses they want. If they want to become snow birds and do a Florida trip once a year, they have that option with this program in place.
What about leaving a home as an inheritance?
When a residence is sold or no longer used as a primary residence by the homeowner the HECM must be repaid. Repayment includes the cash, any interest and other finance charges applied by HECM. Anything that exists beyond these amounts belongs to the estate of the homeowner.
Since the home belongs to the estate of a homeowner any equity left in the home is transferred to their heirs. Any debt accumulated by a reverse mortgage HECM will not be transferred to a homeowner’s heirs.
How much money is available for a homeowner to borrow?
The total amount of money available with a reverse mortgage HECM is based on several things; the age of the borrower, the interest rate at the time the reverse mortgage is taken, the initial mortgage insurance premium and the appraised value of the home. There is a limit of $625,000 for the FHA HECM. Homeowners must use the HECM Standard or Saver for their initial mortgage insurance premium.
Borrowers get more money for their home using the HECM Standard choice. Furthermore, the more valuable a home, the lower the interest rate along with the older the homeowner-the more can be borrowed with the HECM Standard choice.
The HECM Home Page has a calculator homeowners use to estimate the cash benefits available based on this information. There are a number of reverse mortgage calculators available around the web used to estimate the amount of monies a homeowner can borrow.
What if there is more than one owner?
If there is more than one property owner on the property deed and the Standard Option is chosen the age of the youngest borrower is used to decide how much is available to borrow.
What about using an estate planner to locate a reverse mortgage?
Services or companies charging a fee, such as an estate planner, are not recommended for referring homeowners to an FHA approved mortgage lender. The HUD website (www.hud.gov) or HECM counselors are available for locating an FHA approved mortgage lender free of charge.
HECM counselors are found with an online search or calling HECM at 800-569-4287 for a specific name and/or location of one of the approved HUD housing counseling agencies in a homeowners local community.
How does a homeowner receive payments from a reverse mortgage?
There are a number of different ways borrowers receive payments from a reverse mortgage
· Tenure-equal monthly payments continue while a homeowner lives in the primary residence or until they die
· Modified tenure-a mixture of line of credit and scheduled payments each month as long as they remain in the residence
· Term-equal monthly payments for a fixed time period selected when the reverse mortgage is completed
· Modified term-a combo of monthly payments for a fixed amount of time along with a line of credit
· Line of credit-unscheduled or unstructured installment payments a borrower selects which continues until the line of credit is drained
What about changing your mind?
A homeowner is able to change their mind about getting a reverse mortgage after closing. There is a window of three calendar days to cancel the reverse mortgage loan or the reverse home mortgage program participation.
The process to cancel a reverse mortgage loan is described to the borrower as part of the closing process. However, the exact details or cancellation process should be asked at closing if there are any questions about the reverse mortgage loan.
There are a number of reverse mortgage scams online. Be aware of any online service that appears to be fraudulent. Homeowners can verify with the Better Business Bureau the credibility of a reverse mortgage program as well as checking with HUD for verification of any program's credibility.
There are tons of homeowners considering taking advantage of this process. Hopefully this has shed some light on the entire method of borrowing against a home you currently own or the reverse home mortgage loan.
Educate yourself about reverse mortgage fraud
Do you still have more questions?
Find a way to educate yourself further on the process. There are plenty of hard back books on the subject as well as more online resources.
One of the best sources is the website listed for the HECM program. Though Amazon has some terrific supplies to find answers to any questions you have on your mind.
Reverse Home Mortgages
Another source of very relevant and helpful material for any homeowner
A Complete Guide to Reverse Home Mortgages is a nice source of info to have on hand to walk any homeowner through the process. With this type of quick guide in hand, any questions are easy and simple to answer immediately.