In the U.S., reverse mortgages are becoming more and more popular. One of the first ones was made by the U.S. Department of Housing and Urban Development (HUD). The Reverse Mortgage from HUD is a private loan that is insured by the government. It is a safe plan that can help older Americans feel more financially secure. Many older people use it to add to their Social Security payments, pay for unexpected medical bills, make home improvements, and more. If you call AARP's toll-free number, 1-800-209-8085, you can get free information about reverse mortgages. Since your home is probably your biggest investment, it's a good idea to learn more about reverse mortgages and decide if you want one.
What does a reverse mortgage mean?
A reverse mortgage is a special kind of home loan that lets a homeowner turn some of the equity in his or her home into cash. You can get the equity you've built up over years of paying your mortgage. But unlike a traditional home equity loan or second mortgage, the borrower(s) don't have to pay back the loan until they no longer live in the home as their main home. The HUD reverse mortgage has these benefits, and it is also insured by the federal government.
- Am I eligible for a reverse mortgage from HUD?
HUD's Federal Housing Administration (FHA) says that a borrower must be 62 or older, a homeowner, own their home outright or have a low mortgage balance that can be paid off at the closing with the money from the reverse mortgage, and live in the home. You also have to get consumer information from counselling sources approved by HUD before getting the loan. You can call the Housing Counseling Clearinghouse at 1-800-569-4287 to get the name and phone number of a HUD-approved counselling agency and a list of FHA-approved lenders in your area.
- Can I apply if I didn't get FHA mortgage insurance when I bought my current home?
Yes. Even if you didn't buy your home with an FHA-insured mortgage, it still has to meet HUD's minimum property standards. Your new HUD reverse mortgage loan will be backed by the FHA.
- What kinds of homes can get the loan?
You must own and live in a single-family home or a property with two to four units. Townhouses, single-family homes, condo units, and some mobile homes are all eligible. Condos must be approved by the FHA. Condos may be able to get a loan through the Spot Loan programme. The house must be in good shape and meet the minimum property standards set by HUD. In some cases, repairs can be made to a home after a reverse mortgage has been paid off.
What's the difference between a bank home equity loan and a reverse mortgage?
With a traditional second mortgage or a home equity line of credit, you must have enough income compared to your debts to qualify for the loan, and you must make monthly mortgage payments. The reverse mortgage is different because it pays you and you can get it no matter how much money you have now. How much you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or the FHA mortgage limits for your area, whichever is less. In general, you can borrow more money and pay less interest if your home is worth more and you are older. You don't have to pay back the loan because you don't have to as long as the house is your main home. You still have to pay your real estate taxes and other regular bills, like utilities, but if you have an FHA-insured HUD Reverse Mortgage, you can't lose your home or be forced to move because you "missed your mortgage payment."
- If I die before the loan is paid off, can the lender take my house?
No! The loan is also not due. You don't have to pay back the loan as long as you or one of the other borrowers keeps paying the taxes and insurance on time and stays in the house. You can't owe more on your home than it's worth.
- Will I still be able to leave something to my heirs?
When you sell your house or stop using it as your main home, you or your estate will have to pay back the money you got from the reverse mortgage, plus interest and other fees. If you still have equity in your home, you or your heirs own it. The HUD reverse mortgage loan will not affect any of your other assets. This debt won't be left to the estate or the heirs.
- How much can I get from selling my house?
How much you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or the FHA mortgage limits for your area, whichever is less. In general, you can borrow more money and pay less interest if your home is worth more and you are older.
Should I use a service that helps people plan their estates to find a reverse mortgage?
I was contacted by a company that said it would give me the name of a lender in exchange for a "small percentage" of the loan. HUD does NOT recommend using a service for estate planning or any service that charges a fee just to put a borrower in touch with a lender. This information is free from HUD, and HUD-approved housing counselling agencies can give you information, advice, and a list of HUD-approved lenders for free or for a small fee. Before you agree to pay for a simple referral, call 1-800-569-4287 to get the name and location of a HUD-approved housing counselling agency near you.
You can do five things:
- Tenure: Equal monthly payments as long as at least one borrower lives there and uses it as their main home.
- Term: payments are made every month for a set number of months.
Line of Credit: Payments can be made all at once or in instalments at times and amounts chosen by the borrower until the line of credit is used up.
- Modified Tenure is a combination of a line of credit and monthly payments for as long as the borrower stays in the home.
- A modified term is a combination of a line of credit and monthly payments for a set number of months that the borrower chooses.
Website: www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm
