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The HUD Reverse Mortgage Program for Homeowners

Updated on December 11, 2017
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Reverse home mortgage programs for seniors can be a godsend in some cases. 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 service lets a homeowner withdraw a portion of the equity earned over the years. There are a number of ways people use it as provided by HUD. This is information available for any one owning a home interested in the program.

Definition of a reverse mortgage

A more complete explanation is the transfer of a portion of the equity in a home into cash. Equity is generally produced from years of making mortgage payments. Basically it is the difference between the amount borrowed and what a property is actually worth on the market. It does have other distinctions compared to other kinds of mortgages.

How it differ from others

When compared to a traditional loan, home equity or even a secondary mortgage there are distinct features. One of the biggest is the fact borrowers are not required to pay back monies until the home is no longer a primary residence as outlined in the guidelines.The payments are made to the borrower instead of the reverse. Borrowers do not pay the bank.

Additionally, it is okay for a not so traditional borrower as other kinds of business when using a house as a form of collateral. How long some one has worked a job is not as important or even at all in most cases.

Rejections do not hinge on whether after the transaction monies are used to buy another property to turn it into a primary residence. There are circumstances unique to every person, couple or family when it comes to taking one out and these are general rules. Much more precise info is given when sitting down with companies offering these kinds of services. Again, each tailored to fit an individual need.

This is a federal program, but the state where the transaction takes place as well as the financial institution used are key parts of the process. Characteristically a majority of the guidelines touch on cash in hand.

Who qualifies for one

In order to be eligible a person must be at least 62 years old and the house must be mortgage free. There are a few structures considered outside of the norm of these rules. These other structures also have restrictions, but methods have been adjusted to include these as closely as possible to houses falling in the same category of covered services.

An extremely nice thing is a minimum amount owed counts as almost loan free. If the home has an extremely small balance amount left to pay off all borrowers in full with the monies from the reverse loan, it is not counted against the applicant as a reason for denial. The small print notes exceptions.

Every applicant must work thru a counselor

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. Contact ounselors for the FHA HECM online at the FHA website or by telephone at 800-569-4287.

What types of homes qualify under processes and methods

· Homes purchased with or without an FHA type mortgage

· Single family dwellings

· 2-4 unit houses with one unit occupied by the homeowner

· Manufactured ones meeting the FHA requirements

· HUD accepted condos

What is the difference in comparing a home equity loan and reverse mortgage ones

When a homeowner applies for a home equity loan, equity mortgage or a what is referred to as a second mortgage ( it could also be a third one) income is part of a recipients eligibility. If income is not adequate the applicant fails the requirements for a line of credit or secondary mortgage.The same does not hold true for this kind of borrowing. Future earning power is an enormous part of it.

Earned income is not a factor for this one. Regardless of earnings or what monies come home on a paycheck from employment, working or retired, it is irrelevant in whether or not a positive outcome takes place. More important is the amount of equity at the time an individual applies.

How to calculate monthly payments to borrowers

A reverse mortgage pays the homeowner minus the monthly loan principal or interest payments still owed. They are still responsible for local property taxes along with utilities and any hazard or flood insurance as needed by the institution.

Advantages of getting a reverse mortgage with HECM?

Older Americans have been using these kinds of transactions as a way to supplement current income with financial security. These Americans generally have incomes consisting mainly of Social Security after reaching retirement age. Hardworking folks with little in the form of retirement checks capable of maintaining a particular type of lifestyle.

This is designed for seniors to help them 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 or frills desired. A Florida trip once a year for snow birds without a strain on income is one such reason these options are in place.

Investments come along for which pulling a 401 retirement package is not worth the penalties entailed, extra cash for graduate school for dependents or even helping out grown up kids in a time of need all fall under the possibilities.

Do homes from inheritances work under this program?

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 in making this happen. Anything existing beyond these amounts belongs to the estate of the homeowner.

Since the building belongs to the estate and not an individual person, any equity left over is transferred to heirs. Any debt accumulated by putting this in place will not be transferred to a homeowner’s heirs. The applicant is responsible.

How much money is available to borrow?

The total amount of money available depends on several things; the age of the borrower, the interest rate at the time the loan is finalized, the initial mortgage insurance premium and the appraised value of the home.

There is a limit of $625,000 for the FHA homes used for this process. Property owners must use the HECM Standard or Saver for calculating a mortgage insurance premium.

Borrowers actually on the whole see more money for those houses using the Standard choice. Furthermore, the more valuable and lower interest rate is taxed. The older the homeowner-the more monies are eligible via the Standard choice methodology.

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 or counselors for the program are available for locating an FHA approved lender free of charge.

When looking for counselors use an online search or calling 800-569-4287 for linking together the company with applicants.. A specific name and/or location of one of the approved HUD housing counseling agencies in a homeowners local community is available.

How does a payment get received?

There are a number of different ways borrowers get reimbursed after closing and completing the process;

· Tenure-equal monthly installments continue while living in the primary residence or until death

· Modified tenure-a mixture of line of credit and scheduled monthly checks as long as a person lives in the residence

· Term-equal monthly stipends 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

For those with a change of heart afterwards

A homeowner is able to have a change of mind about the entire process, even after closing. There is a window of three calendar days to cancel the reverse mortgage loan or the reverse home mortgage program participation.

The method used for cancellation 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.

Scams online

There are a number of scams online under this same name. Be aware of any online service with the appearance of possible fraud. If it seems too good to be true, it probably is just that.

Verification with the Better Business Bureau helps with the credibility of a reverse mortgage program. Check with HUD as well. There is a detailed description of the companies practicing outside of the law and without the best interest at heart for owners.

In conclusion

There are tons of homeowners considering taking advantage of this vehicle for improving finances after retirement. This is the biggest asset most retirees own and in all likelihood are searching for ways to make it work to personal advantage. Hopefully this has shed some light on the entire method of borrowing against a home you currently own or the reverse home mortgage loan.

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.

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 overview in hand, any questions are easy and simple to answer immediately.

Reason folks look into getting one

Typically getting a new place to call home is buying one on a reduced scale when kids leave home. When kids leave and the house seems too large or when downsizing makes sense for upkeep costs.

Monies counting as cash on hand is defined as the difference between it and the sale price and closing costs for a new home with penalty.

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    • Dee aka Nonna profile image

      Dee aka Nonna 

      6 years ago

      What great information. A former co-worker/friend recently retired (both she and her husband) and because they fell a lttle short in planning and because of some unexpected medical bills is having a difficult time with weekly/monthly expenses. I am going to pass this on to them so they can check it out. Thank you for sharing

      Voted up and useful.

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