FHA Reverse Mortgage

An FHA reverse mortgage is one that is insured by the American government through its Federal Housing Administration (FDA), which functions under the auspices of the US Department of Housing and Urban Development (HUD). It is usually referred to as an HECM reverse mortgage.

This type of financial tool allows seniors over the age of 62 to release the equity locked in their homes, allowing them to receive payments for as long as they continue to live in their home. And, because a FHA reverse mortgage is insured by the government, seniors can rest assured that they are fully protected.

What is a FHA reverse mortgage?

Homeowners who are 62 years of age or older, own their home outright or have very small mortgages, and are currently living in the property as their main residence, can qualify for the program.

A reverse mortgage differs significantly from a home equity loan as the borrower makes no monthly repayments - ever. Instead the lender gives the borrower an agreed amount (usually each month) for as long as the borrower continues to live in the house. The loan is only repayable when the house is sold, the house is no longer the principal resident or the owner dies.

At no stage does the lender have the title deeds; they remain at all times in the hands of the homeowner.

With a home equity loan, equity is put back into the home when each repayment is made by the borrower; with a reverse mortgage, the equity is reduced each time the borrower receives money.

It's important to be aware that the amount borrowed can never exceed the equity of the home. If there are insufficient funds to pay the amount owed, HUD will pay the lender the amount of the shortfall. This is guaranteed, as FHA collects an insurance premium from all borrowers to provide this coverage. The insurance premium is deducted from the payments issued to the borrower.

How much can I borrow?

There is a maximum limit that can be borrowed against a FHA reverse mortgage. The determining factors are the value of the home equity, location, interest rate and age of the borrower. Generally, the more valuable your home and the older you are, the more you can borrow. The current maximum varies from $200,160 to $362,790.

How do I get the money?

There are 5 payment plans.

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 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.

Does the lender get my house when I die?

No. Title deeds always stay with the homeowner and heirs. Upon your death, your heirs must repay the loan as one lump sum. This can be done by selling the house (and keeping any remaining equity that is left), selling other assets to raise the loan amount, or by re-mortgaging the house.

Finally, before you can take out a FHA reverse mortgage all applicants must receive consumer education and counseling by an approved HECM counselor so they can be sure this program meets their needs. The service is free or a small charge is made.

Menu:

FHA Reverse Mortgage