Top Ten Things Seniors Should Know if Considering a
Reverse Mortgage
Department of Housing and Urban Development (HUD)
explains program
March 28, 2009 - Reverse Mortgages the government
insured program that allows older Americans to use their home equity -
are becoming increasingly popular. The Department of Housing and Urban
Development (HUD), which insures these loans through its Federal Housing
Administration, has issued a list of ten key things older Americans
should know about this program.
HUD's Reverse Mortgage is a federally-insured
private loan, and the agency says it is a safe plan that can give older
Americans greater financial security.
Many seniors use it to supplement social security,
meet unexpected medical expenses, make home improvements, and more,
according to HUD.
Since your home is probably your largest single
investment, it's smart to know more about reverse mortgages, and decide
if one is right for you.
Following are the ten things to know as prepared by
HUD.
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets a homeowner
convert a portion of the equity in his or her home into cash. The equity
built up over years of home mortgage payments can be paid to you.
But unlike a traditional home equity loan or second mortgage, no
repayment is required until the borrower(s) no longer use the home as
their principal residence. HUD's reverse mortgage provides these
benefits, and it is federally-insured as well.
2. Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD's Federal Housing
Administration (FHA) requires that the borrower is -
● a homeowner,
● 62 years of age or older;
● own your home outright, or have a low mortgage balance that can be
paid off at the closing with proceeds from the reverse loan; and
● must live in the home.
You are further required to receive consumer information from
HUD-approved counseling sources prior to obtaining the loan. You can
contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain
the name and telephone number of a HUD-approved counseling agency and a
list of FHA approved lenders within your area.
3. Can I apply if I didn't buy my present house
with FHA mortgage insurance?
Yes. It doesn't matter if you didn't buy it with an FHA-insured
mortgage. Your new HUD reverse mortgage will be a new FHA-insured
mortgage loan.
4. What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit
property that you own and occupy. Townhouses, detached homes, units in
condominiums and some manufactured homes are eligible. Condominiums must
be FHA-approved. It is possible for individual condominiums units to
qualify under the Spot Loan program.
5. What's the difference between a reverse
mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you
must have sufficient income versus debt ratio to qualify for the loan,
and you are required to make monthly mortgage payments.
The reverse mortgage is different in that it pays you, and is available
regardless of your current income. The amount you can borrow depends on
your age, the current interest rate, and the appraised value of your
home or FHA's mortgage limits for your area, whichever is less.
Generally, the more valuable your home is, the older you are, the lower
the interest, the more you can borrow. You don't make payments, because
the loan is not due as long as the house is your principal residence.
Like all homeowners, you still are required to pay your real estate
taxes and other conventional payments like utilities, but with an
FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to
vacate your house because you "missed your mortgage payment."
6. Can the lender take my home away if I outlive
the loan?
No! You do not need to repay the loan as long as you or one of the
borrowers continues to live in the house and keeps the taxes and
insurance current. You can never owe more than your home's value.
7. Will I still have an estate that I can leave
to my heirs?
When you sell your home or no longer use it for your primary residence,
you or your estate will repay the cash you received from the reverse
mortgage, plus interest and other fees, to the lender.
The remaining equity in your home, if any, belongs to you or to your
heirs. None of your other assets will be affected by HUD's reverse
mortgage loan. This debt will never be passed along to the estate or
heirs.
8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest
rate, and the appraised value of your home or FHA's mortgage limits for
your area, whichever is less. Generally, the more valuable your home is,
the older you are, the lower the interest, the more you can borrow.
9. Should I use an estate planning service to
find a reverse mortgage?
I've been contacted by a firm that will give me the name of a lender for
a "small percentage" of the loan? HUD does NOT recommend using an estate
planning service, or any service that charges a fee just for referring a
borrower to a lender! HUD provides this information without cost, and
HUD-approved housing counseling agencies are available for free, or at
minimal cost, to provide information, counseling, and free referral to a
list of HUD-approved lenders. Call 1-800-569-4287, toll-free, for the
name and location of a HUD-approved housing counseling agency near you.
10. How do I receive my payments?
You have five options:
● 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 amounts of borrower's choosing until the line of credit is
exhausted.
● Modified Tenure - combination of line of credit with monthly
payments for as long as the borrower remains in the home.
● Modified Term - combination of line of credit with monthly payments
for a fixed period of months selected by the borrower.
March 28, 2009 - Reverse Mortgages the government
insured program that allows older Americans to use their home equity -
are becoming increasingly popular. The Department of Housing and Urban
Development (HUD), which insures these loans through its Federal Housing
Administration, has issued a list of ten key things older Americans
should know about this program.