By Ted Butler
About FHA home equity conversion mortgage programs for senior homeowners.
The FHA home equity conversion mortgage, otherwise known as the FHA HECM loan is the most popular reverse mortgage program. The government designed it to help keep seniors secure and in their homes as they enjoy the rest of their lives. A HECM loan is a special type of home loan that enables home owners to convert a portion of their equity into cash. The equity built up over years of home mortgage payments and appreciation can be paid to you. Unlike a traditional home equity loan or second mortgage, no repayment is required as long as your live in your home. The U.S. Department of Housing and Urban Development reverse mortgage provides these benefits, and the Federal Housing Authority's HECM loan is federally insured.
A Reverse Mortgage HECM Loan or FHA Home Equity Conversion Mortgage is working for more and more senior home owners each and every day.
The income received through a reverse mortgage can be used for whatever you want! You are not restricted in how to use the funds. Examples of potential uses for funds received through a reverse mortgage include:
- Purchase long-term care insurance
- Cover medical expenses and prescription drugs
- Supplement retirement income
- Make home repairs or improvements
- Pay for in-home care
- Pay property taxes
You could qualify for a Reverse Mortgage or the FHA Home Equity Conversion Mortgage
The eligibility requirements are easy. There is no income, employment or credit qualifying restrictions.
- All homeowners must be age 62 or older and occupy the property as their principal residence.
- The home must be owned free and clear or having a remaining mortgage balance which can be paid off by a reverse mortgage.
- The home must meet HUD minimum property standards. Sometimes, home repairs can be made after the closing of a reverse mortgage.
- The property must be a single-family home or a two to four unit dwelling.
- Town-homes, detached homes, condominium unit, planned unit developments (PUDs) and some manufactured homes are eligible.
The amount you can receive is based on a few factors.
The maximum amount that can be borrowed is based on the following factors:
- The age of the youngest homeowner.
- The appraised home value.
- The county of residence.
- The current interest rate.
- Lump Sum – Cash is immediately available
- Tenure – Equal monthly payments as long as at least one homeowner 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 – A credit line which the customer can draw upon as he or she wishes.
- Combination – Any combination of the above plans.
The Costs of HECM loans
Just like a typical mortgage loan, reverse mortgage costs include appraisal, credit report, title insurance, legal fees, loan origination, and recording fees. These normal loan costs can be included in your loan balance.
You may have an existing loan on your property.
The existing loan must be paid off prior to or at the settlement of the reverse mortgage. Often the reverse mortgage is used to refinance an existing loan.
Interest is charged in a way you can live with.
The interest rate on a reverse mortgage adjusts and is tied to readily available U.S. Treasury Bill indexes plus a margin. You are not charged any interest on money that have been approved but not yet withdrawn.
If your property is in a living trust.
If you are the primary trustee and are qualified by age, then yes.
If your children own the property in joint tenancy with you.
If the children are age 62 or older and live in the property. Other than that, they would need to be taken off title prior to settlement.
The HECM gives you tax free income.
The cash advances are tax-free. These advances are loan distributions and are not considered income.
If your spouse is permanently in a nursing home, you can still participate in a reverse mortgage.
Yes, only one owner must occupy the property as a principal residence.
The lender can not take my home away if you outlive the loan.
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.
Your estate goes to your heirs.
Your heirs will be able to choose whether to keep the house or sell it. They keep proceeds from the sale of the house, after the loan is payed off.