WHO CAN QUALIFY
Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining are eligible to participate in HUD's reverse mortgage program. The program allows homeowners to borrow against the equity in their homes.
Homeowners can receive payments in a lump sum, on a monthly basis (for a fixed term or for as long as they live in the home), or on an occasional basis as a line of credit. Homeowners whose circumstances change can restructure their payment options.
Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the borrower lives in the home. Lenders recover their principal, plus interest, when the home is sold or refinanced by the heirs. The remaining value of the home goes to the homeowner or to his or her survivors. If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall. The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage.
DOES VALUE OR AGE MATTER
The size of reverse mortgage loans is determined by the borrower's age, the interest rate, and the home's value.
The older a borrower, the larger the percentage of the home's value that can be borrowed.
For example, based on a loan at today's low interest rates, a 65-year-old could borrow up to 60 percent of the home's value, a 75-year-old could borrow up to 70 percent of the home's value, and an 85-year-old could borrow almost to 80 percent of the home's appraised value --- up to the FHA loan limit for each city and county."
There are no asset or income limitations on borrowers receiving HUD's reverse mortgages.
There are also no limits on the value of homes qualifying for a HUD reverse mortgage. However, the amount that may be borrowed is capped by the maximum FHA loan limit for each city and county varies from $172,632 in rural areas to $362,790 in many major metropolitan areas (and even higher in Alaska, Hawaii & the U.S. Virgin Islands) depending on local housing costs."
HOW IT WORKS
HUD's reverse mortgage program collects funds from insurance premiums charged to borrowers. Senior citizens are charged 2 percent of the home's value as an up-front payment plus one-half percent on the loan balance each year. These amounts are usually paid by the lender and charged to the borrower's principal balance.
FHA's mortgage insurance guarantees to the borrowers that they will continue to receive their loan proceeds even if the Lender goes bankrupt. The FHA insurance also guarantees Lenders that they will get their money back with interest and fees even if the homeowners outlive the longevity tables or the property values decrease. Thus while the FHA mortgage insurance increases the initial cost of getting a HECM reverse mortgage, it also allows the Lenders to sell HECM reverse mortgages at interest rates well below those of FannieMae and private lenders."
A borrower who uses an FHA-insured Home Equity Conversion Mortgages (HECM) will receive a reverse mortgage amount based on a formula which includes a Maximum Claim Amount. In general, this means the maximum amount you can receive will be determined by factors including the age of the borrower(s), and the appraised value of the property (or the maximum FHA mortgage amount for your area, if lower).
There are also no restrictions on the value of the homes qualifying for a HUD reverse mortgage. However, the amount that may be borrowed is capped by the maximum FHA Lending Limit for each city and county varying from $200,160 in rural areas to $362,790 in many major metropolitan areas (and even higher in Alaska, Hawaii & the U.S. Virgin Islands) depending on local housing costs."
You should discuss the formula with your lender and your FHA-approved housing counselor. You must first meet with an independent reverse mortgage counselor before applying for a reverse mortgage. The maximum amount that you can receive depends on your age, the interest rate at the time you close, and the appraised value of your home. For example, based on a loan at recent interest rates, a 65-year-old could borrow up to 60 percent of the home's value, a 75-year-old could borrow up to 70 percent of the home's value, and an 85-year-old could borrow almost to 80 percent of the home's appraised value --- up to the FHA loan limit for each city and county.
The money from this loan can be used as you wish, to pay medical bills or property taxes, repair your home or improve your quality of life.
TYPES OF WAYS TO RECEIVE THIS BENEFIT
Line of Credit: You make withdrawals whenever you choose, in whatever amount you’ve chosen, up to your maximum principal limit.
Lump Sum: Take all or any part of the loan at the time you close.
Tenure Plan: You receive fixed monthly payments as long as you own and occupy the home as your principal residence.
Combination: Within certain limits, you may combine the lump sum or tenure options with the line of credit.
REPAYING THE LOAN
Reverse mortgages are designed to eliminate the burden of making monthly mortgage payments. The loan will not be due until you no longer own and occupy your home as your principal residence. At that time, the money you have borrowed plus the interest and fees will be due and payable. Generally, borrowers or their estate repay the loan by selling the home. If the home is sold, you or your estate may keep the proceeds in excess of the amount due the lender.
COSTS OF A REVERSE MORTGAGE
The costs associated with getting a reverse mortgage are similar to those with a conventional mortgage, such as the origination fee, appraisal and inspection fees, title policy, mortgage insurance and other normal closing costs. With a reverse mortgage, all of these costs can be financed as part of the mortgage.
You must first meet with an independent reverse mortgage counselor before applying for a reverse mortgage. The counselor's job is to educate you about reverse mortgages, to inform you about other alternative options available to you given your situation, and to assist you in determining which particular reverse mortgage product would best fit your needs if you elect to get a reverse mortgage. This counseling session should be no cost to the borrower and can be done in person or over the telephone.