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Friday, September 13, 2013

Top 10 things to know if you're interested in a reverse mortgage

Most Common Questions about HUD’s Reverse Mortgages

FHA’s reverse mortgage program known as the Home Equity Conversion Mortgage (HECM) is a program which allows homeowners to withdraw some of the equity in their home.  The HECM is a secure plan that can provide older Americans with greater financial freedom and many seniors use the program to supplement Social Security income, plan for unexpected medical expenses, and even make improvements on their home.  You can receive additional free information about reverse mortgages by contacting us at 800.461.4152 or by filling out an application here.  It’s important to know about reverse mortgages to decide if it is the right option for you!


1. What is a reverse mortgage?

A reverse mortgage is a unique type of home loan. Reverse mortgages allow you to convert a portion of the equity in your home into cash. Years of mortgage payments and built equity can be paid to you.

One common misconception is the difference between a reverse mortgage and a traditional home equity loan. The distinction between a traditional home equity loan or second loan is that with HECM borrowers do not have to pay back the HECM loan until the borrower no longer uses the home as their primary residence or fails to meet the commitments of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. How do I qualify for FHA’s HECM reverse mortgage?

In order to be eligible for FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan. It is also a requirement that you must be living in the home as your primary residence. Lastly, you are required to receive consumer information free or at a very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor by phoning us at 80.461.4152 or by filling out an application here.

3. Can I apply for a HECM regardless of whether or not I purchased my home with an FHA insured mortgage?

Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.

4. What types of homes are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

5. What are the differences between a reverse mortgage and a home equity loan?

With a second mortgage, or a home equity line of credit, borrowers must have adequate   income to qualify for the loan, and they make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

6. Will we have an estate that we can leave to heirs?

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.

7. How much money can I get from my home?

The amount you may borrower will depend on:

  • Age of the youngest borrower

  • Current interest rate

  •  Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and

  • Initial Mortgage Insurance Premium--your choices are HECM Standard or HECM SAVER

In addition, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow.  If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.  Many online reverse mortgage calculators can provide you with an estimate of the amount of funds you can borrow.

8. Should I use an estate planning service to find a reverse mortgage lender?

FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender.  RANLife Home Loans is an FHA-approved lender and can service your reverse mortgage without any extra hidden fees.  One of our licensed Loan Officers can provide you free financial advice on reverse mortgages and the right option for you.  

9. How do I receive my payments?

You can select from five 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 in an amount of your choosing until the line of credit is exhausted.

·         Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home.

·         Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

 10. What if I change my mind and no longer want the loan after I go to closing?  How do I do this?

By law, you have three calendar days to change your mind and cancel the loan.  This is called a three day right of rescission.  The process of canceling the loan should be explained at loan closing.  Be sure to ask the lender for instructions on this process.  Mortgage lenders differ in the process of canceling a loan.  You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place.  In most cases, the right of rescission will not be applicable to HECM for purchase transactions.

HECM reverse mortgages can be a great option for those looking to improve their financial security.  It’s important to understand exactly how they work and the requirements involved.  Any questions about the program or benefits can be direction to one of our representatives at 800.4614152.  

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