A
Reverse Mortgage is a U.S. government insured* loan that allows qualifying
homeowners to access the equity in their homes without making any monthly
payments. You can access the equity in your home in the form of a:
•
lump sum,
•
guaranteed monthly payment, or
•
even a line of credit,
and
repayment will be deferred until you no longer reside in your home.
*92%
of all loans are HECMs (Home Equity Conversion Mortgages).
REVERSE
MORTGAGES FOR SENIORS
Section
255 - Home Equity Conversion Mortgages (HECM)
REVERSE
MORTGAGES = HOME EQUITY
CONVERSION MORTGAGES (HECM)
About
the HECM Program:
The
HECM FHA insured reverse mortgage can be used by senior homeowners age
62 and older to convert the equity in their home into monthly streams
of income and/or a line of credit to be repaid when they no longer occupy
the home.
The
loan, commonly known as HECM, is funded by a lending institution such
as a mortgage lender, bank, credit union or savings and loan association.
To assist the homeowner in making an informed decision of whether this
program meets their needs they are required to receive consumer education
and counseling by a HUD approved HECM counselor.
HECM
counselors will discuss program eligibility requirements, financial
implications and alternatives to obtaining a HECM and provisions for
the mortgage becoming due and payable.
Upon
the completion of HECM counseling homeowners should be able to make
an independent, informed decision of whether this product will meet
their needs. You can also use this handy Reverse Mortgage Calculator
to help you see if you qualify:
http://www.rmaarp.com
Homeowners
who meet the eligibility criteria can complete a reverse mortgage application
by contacting a FHA approved lending institution such as a bank, mortgage
company, or savings and loan association.
If
you need assistance locating a FHA approved lender, you can request
a listing of FHA approved lenders from the HECM counselor or use HUD's
searchable listing. Call 1-800-569-4287 for HUD assisstance. (This number
and other contact numbers and links will be provided throughout this
article).
HOW
DO I QUALIFY FOR A REVERSE MORTGAGE?
Qualification
is based on your age, home value, location and equity held in your primary
residence – not your income or credit.
Borrower Requirements:
•
Age 62 years of age or older,
•
Own your property,
•
Occupy your property as primary residence,
•
Participation in a consumer information session given by an approved
HECM counselor.
Mortgage Amount Based On:
•
Age of the youngest borrower,
•
Current interest rate,
•
Lesser of appraised value or the FHA insurance limit.
Financial Requirements:
•
No income or credit qualifications are required of the borrower,
•
No repayment as long as the property is the primary residence,
•
Closing costs may be financed in the mortgage.
Property Requirements:
•
Single family home or 1-4 unit home with one unit occupied by the borrower,
•
HUD approved condominiums,
•
Manufactured homes and leased land,
•
Meet FHA property standards and flood requirements.
HOW
THE HOME EQUITY CONVERSION MORTGAGE PROGRAM WORKS:
Homeowners
62 and older who have paid off their mortgages or have only small mortgage
balances remaining, and are currently living in the home are eligible
to participate in HUD's reverse mortgage program.
The
program allows homeowners to borrow against the equity in their homes.
Homeowners
can select from five payment plans:
•
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 amount 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.
Homeowners
whose circumstances change can restructure their payment options for
a nominal fee of $20.
Unlike
ordinary home equity loans, a HUD reverse mortgage does not require
repayment as long as the home is the borrower's principal residence.
Lenders
recover their principal, plus interest, when the home is sold. The remaining
value of the home goes to the homeowner or to his or her survivors.
You can never owe more than your home's value.
If
the sales proceeds are insufficient to pay the amount owed, HUD will
pay the lender the amount of the shortfall. HUD's Federal Housing Administration
(FHA) collects an insurance premium from all borrowers to provide this
coverage.
The
amount a homeowner can borrow depends on:
•
their age,
•
the current interest rate,
•
other loan fees, and
•
the appraised value of their home or FHA 's mortgage limits for their
area, whichever is less.
Generally,
the more valuable your home is, the older you are, the lower the interest,
the more you can borrow.
For
example, based on a loan with an interest rates of approximately 9 percent,
and a home qualifying for $100,000,
•
a 65 year-old could borrow up to 22 percent of the home's value;
•
a 75 year-old could borrow up to 41 percent of the home's value; and,
•
an 85 year-old could borrow up to 58 percent of the home's value.
The
percentages do not include closing costs because these charges can vary.
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.
The
value of the home will be determined by an appraisal. However, the amount
that may be borrowed is derived from the lower of the appraisal amount
or FHA mortgage limit for the area, which varies from $200,160 to $362,790.
For
Alaska, Guam, Hawaii and the Virgin Islands, the FHA mortgage limits
may be adjusted up to 150 percent of the ceiling depending on the area.
The FHA limits usually increase each year. As a result, owners of higher
priced homes can't borrow any more than owners of homes valued at the
FHA limit.
HUD's
reverse mortgage program collects funds from insurance premiums charged
to the homeowners. Homeowners are charged an upfront insurance premium
which is 2 percent of the maximum claim amount that may be borrowed
plus a .5 percent annual premium.
REVERSE
MORTGAGE SUPPORTING ORGANIZATIONS AND AGENCIES
HUD
Approved HECM Counseling Agencies
http://www.hud.gov/offices/hsg/sfh/hecm/hecmlist.cfm
HUD Approved Reverse Mortgage Lenders
http://www.hud.gov/ll/code/llplcrit.html
You can also 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.
HECM
Public Service Announcement
http://www.hud.gov/webcasts/archives/pubservice.cfm
HECM Servicers
http://www.hud.gov/offices/hsg/sfh/hecm/hecmservlist.pdf
Reverse Mortgage Calculator
http://www.rmaarp.com/
To
assist the homeowner in making an informed decision of whether this
program meets their needs they are required to receive consumer education
and counseling by a HUD approved HECM counselor.
If
you need assistance locating a FHA approved lender, you can request
a listing of FHA approved lenders from the HECM counselor (1-800-569-4287)
or use HUD's searchable listing .
Reverse
Mortgages are becoming popular in America. The U.S. Department of Housing
and Urban Development (HUD) created one of the first.
HUD's
Reverse Mortgage is a federally insured private loan, and it's 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. You can also receive free
information about reverse mortgages by calling AARP at: 1-800-209-8085,
toll free.
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!
DISPOSITION
OF FUNDS
How
are the proceeds received?
Reverse
Mortgage proceeds are tax free and can be taken in:
•
a lump sum payment,
•
as monthly income,
•
a line of credit, or
•
any combination of the three.
Are there any taxes on the loan?
No.
A Reverse Mortgage converts home equity into tax free income.
Are there any monthly payments that need to be made?
There
are NO monthly loan payments. The loan is repaid when you no longer
own and occupy the primary residence, and you will never owe more than
the home value.
Will government benefits be affected?
Social
Security and Medicare benefits remain intact.
Are there any penalties for prepaying the loan?
The
full loan can be prepaid at any time without incurring any penalties.
WHO
ISSUES A REVERSE MORTGAGE?
There
are a few different organizations issuing reverse mortgages:
•
the Federal Housing Administration (a division of the U.S. Housing and
Urban Development department),
•
Fannie Mae, and
•
a small number of private corporations.
What
will it cost?
Many
people can actually obtain a Reverse Mortgage without any upfront, out-of-pocket
costs. Although closing costs vary based on loan amount, the borrower
has the option to take closing costs out of the loan proceeds.
SUMMARY
TOP
TEN THINGS TO KNOW IF YOU ARE INTERESTED
IN A REVERSE MORTGAGE
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?
For
example:
"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.
News Articles Concerning Reverse Mortgages:
Reverse
Mortgages have become a legitimate financial planning tool. Major media
outlets are continually addressing this updated loan product as an option
senior Americans should be contemplating. The following articles echo
this profound message.
•
Investors Business Daily: Plan Shifts Seniors Ahead; Reverse mortgages
pull in older owners and the backing of government.
http://seniorlendingnetwork.com/files/news/prReverse20070326.pdf
• Chicago Tribune news: Getting reverse mortgage can boost elders'
finances.
http://seniorlendingnetwork.com/files/news/ChicagoTribune20070209.pdf
• Chicago Tribune www.chicagotribune.com, "The Journey: New
Options, Spin on Reverse Mortgages"
http://www.reversemortgagetimes.org/cgi-bin/forms/
forms.cgi?form=9&c1=GAW_SE_NW&source=GAW&
w=reverse_mortgage_new&gclid=CM_IgMvcmI0CFQ
uHgodAXVT1Q
Mortgage brokers are saying that affluent homeowners are using Reverse
Mortgages for investing in stocks, upgrading their homes and paying expenses
instead of dipping into their retirement accounts. Homeowners may decide,
for example, that they want to bequeath today's home value to their children.
They can take out a Reverse Mortgage for a portion of the equity, then
let market appreciation take care of bringing back the heirs' value over
time.
• MSNBC www.msnbc.com, "Help Your Mom and Dad In Their Golden
Years"
http://www.msnbc.msn.com/id/15429252/
Aging parents might
have trouble keeping up with their finances, so practical advice about
the many options available to help them are given. A Reverse Mortgage
is one example of an excellent choice to add income on a monthly basis
to help pay expenses.
• AARP www.aarp.org,
"A New Kind of Loan: In Reverse"
http://www.aarp.org/money/revmort/revmort_basics/a2003-03-21-newloan.html
http://www.aarp.org/money/revmort/revmort_basics/a2003-03-21-basicloanfeatures.html
http://www.aarp.org/money/wise_consumer/
financinghomes/a2002-09-30-HomeLoansHomeEquityLoanTerms.html
It's no surprise
that Reverse Mortgages are extremely popular among seniors. This article
gives examples of seniors who have benefited from Reverse Mortgages,
why they are a valid option, and why so many seniors need to be informed
their homes are excellent sources of
additional income.
• Reverse
Mortgage Volume Up 85 Percent
• U.S. House
of Representatives Passes
• HUD (U.S.
Department of Housing & Urban Development) sponsors and regulate
all reverse mortgage loans.
• U.S. News
& World Report www.USNews.com, "Cashing In On Your Home"
http://www.usnews.com/usnews/biztech/articles/050613/13reverse.htm
SENIOR
LENDING NETWORK
Dispelling the
Myths
Many seniors still
believe that if they get a Reverse Mortgage, they'll lose their home
and won't have anything left to leave to their children or heirs. This
myth could not be further from the truth. That is why Senior Lending
Network works hard to dispel these old time myths and educate seniors
about Reverse Mortgage truths and facts.
Dispelling the
Myths
A. Ownership Issues
1. Retain title
2. Don't have to
sell home
B . Heirs
1. Have access
to equity in the home
2. Entitled to
any appreciation of property value
C . Penalties
1. No penalties
for prepaying loan at anytime
D . Government Benefits
1. Social Security
and Medicare are not affected
Can I use the proceeds any way I want?
You can use the
tax free* income for anything you want :
• cover the
cost of long term healthcare,
• pay off
or consolidate your debt,
• take a
much needed vacation, or
• make home
improvements.
Will I still own my home?
Yes. As long as
you continue to pay your taxes, make your insurance payments and maintain
your home in good working order.
Will my heirs still have their inheritance?
Yes. They will
still have access to the equity in the home, and are entitled to any
appreciation of the property value. In most cases the equity continues
to increase with a Reverse Mortgage.
Financial decisions
regarding your home are some of the most important decisions you'll
ever have to make. Senior Lending Network encourages you to learn everything
you can about your home financing solutions, including whether or not
a Reverse Mortgage is the right option for you.
Everyone's financial
situation is different, so education is key to making an informative
decision that will benefit you and your family for years to come.
A FREE Educational
video, tells you everything you need to know, in easy-to-follow language
so you can fully understand the advantages of a government insured Reverse
Mortgage and how it can help you.
To get this informative,
valuable video, call:1-800-454-1546 or go to:
https://secure.seniorlendingnetwork.com/secure/html/lower.cfm?page=request_info.index
http://seniorlendingnetwork.com/html/lower.cfm?page=rev_mor_facts.index
Please visit the following websites for additional information:
1. HUD (Department
of Housing and Urban Development)
http://search.hud.gov/search?q=reverse+mortgage&sort=date%3AD%3AL%3
Ad1&output=xml_no_dtd&ie=UTF-8&oe=UTF8&client=default_frontend&proxy
stylesheet=default_frontend&site=default_collection
2. NRMLA (National Reverse Mortgage Lenders Association)
http://www.nrmlaonline.org/
3. Senior Funding Group
http://www.seniorfundinggroup.com/index.asp
4. Reverse New York Mortgage
http://www.ReverseNY.com/helpful_links.php
5. Reverse New York
http://www.ReverseNY.com/?gclid=CNb0zP_zmY0CFQElHgodNxxI0g
Technical Guidance:
http://www.hud.gov/offices/hsg/sfh/hecm/hecmabou.cfm
This program is
authorized by the Housing and Community Development Act of 1987, Section
417, Public law 100-242 (12 U.S.C. 1715z-20). Program regulations are
in 24 CFR 206. This program is administered by the Office of Single
Family Program Development in HUD's Office of Housing Federal Housing
Administration.
