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Reverse Mortgage

REVERSE MORTGAGE

The Reverse Mortgage also known as home equity conversion mortgage (HECM) and is a loan for those aged 62 and above who own their own homes. A Reverse Loan uses your home equity as collateral. Reverse mortgage loans are insured by the Federal Housing Administration (FHA). They allow homeowners to convert their home equity into cash with no monthly mortgage payments and use this money without restrictions. These proceeds are not taxable income.

The borrowers are however required to continue paying property taxes, insurance and maintain the home according to FHA guidelines. The loan does not become due as long as the borrower lives in the home as his primary residence and continues to meet all loan obligations.

The homes eligible for reverse mortgage must meet FHA minimum property standards.

Eligible property types

  • Single Family Homes
  • Condominiums
  • Townhomes
  • Planned Unit Developments
  • Manufactured Homes (restrictions may apply)
  • 1-4 units (restrictions may apply)

Properties must be owner occupied, borrower’s primary residence, and comply with FHA standards and requirements.

Factors that determine the amount of the loan includes:

  • Age of the borrower
  • Home appraised value
  • Sale price
  • Maximum lending limit
  • Current interest rate

The loan doesn’t have to be repaid till six months after the last surviving homeowner moves out of the property or dies. When the reverse mortgage loan does become due, the borrower’s heirs/estate can choose to repay the reverse mortgage loan and keep the home or they can decide to put the home up for sale in order to repay the loan. If the estate sells the home to repay the loan, the heirs can receive any remaining equity of the home but the estate is not responsible for any additional mortgage debt if the home sells for less than the payoff amount of the reverse mortgage loan.

REVERSE LOAN ELIGIBILITY

  • Borrower must be 62 years or older
  • If there is an existing mortgage on the home, it may be paid off with the proceeds from the reverse mortgage loan
  • Borrower must meet financial eligibility criteria as established by HUD
  • Borrowers must occupy the property as his primary residence

TYPES OF REVERSE MORTGAGE

  • Single-purpose reverse mortgages: this type of loan is offered by some state, local government agencies and non-profit organizations. It is the least expensive type of reverse loan.
  • Proprietary reverse mortgages: this is a private loan that is backed by companies that developed them.
  • Home Equity Conversion Mortgages (HECM): this type of loan is insured by the government and backed by and are backed by the U. S. Department of Housing and Urban Development (HUD)

ADVANTAGES

  • Low-cost loan
  • No credit check or income verification is required