A reverse mortgage is a loan that converts the borrower’s home equity into payments from a lender and, typically, does not require any mortgage repayments as long as the borrower continues to live in the home. HOWEVER, the borrower has to continuing paying insurance and taxes on the home. Industry reports indicate that almost all reverse mortgages are made under the Home Equity Conversion Mortgage (HECM) program, which is administered by the Department of Housing and Urban Development (HUD) through the Federal Housing Administration (FHA). While other types of Reverse Mortgages are available, such as Standard Reverse Mortgage that can have higher fees and costs associated with it than an HECM Savers. There is also a HECM for Purchase which allows you to borrower for the purpose of buying a new home.
Reverse mortgages typically are “rising debt, falling equity” loans, in which the loan balance increases and the home equity decreases over time. As the borrower receives payments from the lender, the lender adds the principal and interest to the loan balance, reducing the homeowner’s equity. The loan amount that a lender can advance to a borrower depends on three factors. First, the loan amount is based on the “maximum claim amount,” which is defined as the lesser of the appraised value of the house. Second, the age of the borrower affects the borrower’s loan amount—the older the borrower, the higher the loan amount. However, if there is more than one homeowner, the loan amount is based on the age of the youngest borrower. Third, the interest rate also affects the loan amount. Typically, the lower the interest rate, the higher the loan amount.
General eligibility restrictions and requirements:
Benefits of a Reverse Mortgage:
Costs Associated with HECM (for detailed explanation of costs and fees ask the lender you select and make sure to ask about the overall risks associated with this mortgage product):
Don't sign any loan documents unless you understand how your reverse mortgage will work. You may also contact a HECM counselor from FHA's National HECM Counseling Network. These counselors provide both face-to-face and telephone counseling nationwide and you are required to speak to one before you make any decisions regarding a reverse mortgage.
HECM for Purchase program is available to allow seniors to purchase a new primary residence and obtain a reverse mortgage within a single transaction. The program is also designed to assist in relocation to other geographical areas, downsize, or to purchase a home that meet their physical needs, Eligibility is similar to that of a Reverse Mortgage/HECM but there are some variations, at least one of the borrowers be 62 or older, and intend to purchase a new primaryresidence using loan proceeds from a reverse mortgage.
Certain properties are ineligibe for the program, such as:
If you want further assistance LendingTree strongly encourages you to visit the FHA Resource Center.