HUD Reverse Mortgage
In 1989, the American Department Housing and Urban Development (HUD) issued, through its subsidiary, the Federal Housing Administration (FHA), the first ever Home Equity Conversion Mortgage (HECM) - usually referred to as a HECM or HUD reverse mortgage.
Reverse mortgages had been around for well over 30 years before this, but they had remained an obscure financial product. However, HUD reverse mortgages differ significantly in that they are highly regulated and are insured by the government. This is an important point: a lender can use this financial tool safe in the knowledge that, no matter what, they will always receive the promised payments and will never loose their home through a lender going bust.
What is a HUD reverse mortgage?
This type of HUD mortgage is proving to be very popular for seniors who are looking for a way of utilizing the equity in their home to raise finance, without the worry of ever defaulting on repayments, because there aren't any repayments.
A HUD reverse mortgage works differently to that of a regular home equity loan. There are no monthly payments, unlike an equity loan, hence the word 'reverse'. With a home equity loan the equity in your home increases as you make each monthly repayment. With a reverse mortgage, the equity in your home is reduced as you receive payments.
With a HUD reverse mortgage you are guaranteed to receive the amount stated no matter how long you live in the home.
Who can qualify for a HUD reverse mortgage?
The FHA requires that the person(s) applying are homeowners, own outright or owing very little on the home and are at least 62 years of age. There are no medical or income checks.
What type of home is eligible?
If you own and occupy a single family dwelling or a two-to-four unit property as your principal residence, you qualify. Townhouses, detached homes, units in condominiums and some manufactured homes are also eligible, however, condominiums must be FHA-approved.
Can I loose my home?
Never. Title deeds remain in the homeowners hands and never with the lender. Provided you keep you house in good repair, pay taxes and insurance you will never loose your home.
How much can I borrow?
That depends on a number of things like the value of your home, where it's located, interest rates and how old you are. There is a cap on the limit of loan amount. Generally, the more equity you have in your home and the older you are, the more you can borrow.
Will it affect Social Security or Medicare benefits?
No. A HUD reverse mortgage is considered a loan and the above are not means tested anyway.
A HUD reverse mortgage can be a powerful financial tool for seniors. When used wisely, it can help to pay medical costs, supplement pensions and social security, and help towards education costs for family members. In fact, the money can be used in any way you see fit.
When applying for an HUD HECM reverse mortgage you are required to speak to an independent advisor who will talk to you about the pros and cons and help you decide if it's right for you.
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