(A HUD
Publication)
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 receive free
information from HUD about Reverse Mortgages
by calling 1-888-466-3487, 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!
1. What is a reverse mortgage?
A reverse mortgage is a special type of home
loan that lets a homeowner convert the equity in
his or her home into cash. The equity built up
over years of home mortgage payments can be paid
to the homeowner: in a lump sum, in a stream of
payments, or as a supplement to Social Security
or other retirement funds. But unlike a
traditional home equity loan or second mortgage,
no repayment is required until the borrowers 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 requires
that you are a homeowner 62 years of age or
older; have a very low outstanding mortgage
balance or own your home free and clear; and
that you meet with a HUD-approved counseling
agency -- to make sure you understand what a HUD
Reverse Mortgage will mean for you. Call
1-888-466-3487, toll free, for more information.
3. Can I apply if I didn't buy my present
house with FHA mortgage insurance?
Yes. While your property must meet FHA
minimum standards, 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 if I own a condominium, not a
single-family home?
You can still qualify for HUD's reverse
mortgage program. An eligible property must be
your principal residence, but can be a
single-family residence; a one- to four-unit
dwelling with one unit occupied by the borrower;
a manufactured home (mobile home); a unit in
FHA-approved condominiums; and Planned Unit
Developments. Your property must meet FHA
minimum property standards, but you can fund
repairs from your reverse mortgage.
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 to qualify for the loan, and you are
required to make monthly mortgage payments. A
reverse mortgage works very differently. The
reverse mortgage pays you, and it is available
regardless of your current income. 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 cannot outlive the loan agreement,
and no debt from a Reverse Mortgage will passed
along to the estate or heirs. You cannot be
forced to sell your home to pay off the mortgage
loan even if the loan balance grows to exceed
the value of the property. And, HUD's Federal
Housing Administration guarantees that you'll
receive all the payments that are owed to you.
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
finance charges, to the lender. All proceeds
beyond what you owe belong to you or your
estate. This means the remaining equity in your
home can be passed on to your heirs. None of
your other assets will be affected by HUD's
reverse mortgage loan. No debt will ever be
passed along to the estate or heirs. You retain
ownership of your home, and may sell or move at
any time.
8. How much money can I get from my home?
A borrower who uses an FHA-insured 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).
For example, based on a loan at recent interest
rates, a 65-year-old could borrow up to 26
percent of the home's value, a 75-year-old could
borrow up to 39 percent, and an 85- year-old
could borrow up to 56 percent. You should
discuss the formula with your lender and your
HUD-approved housing counselor.
9. What if I want to take out more equity
from my home than the FHA-insured mortgage
limits for my area?
Like FHA's home mortgage programs, HUD's
reverse mortgage is primarily intended for low-
and moderate-income families. For instance, FHA
maximum home mortgage amounts range from $78,660
to $155,250, depending whether the home is in a
standard housing-cost area, or an area
determined by FHA to be a high-cost area. An
owner with a property valued well beyond the FHA
mortgage limits, and who has a large amount of
equity, will not receive as much cash from a
HECM as they might from another reputable
private or public agency. Reverse mortgage
programs are available in most states of the
nation, including the District of Columbia and
Puerto Rico, through HUD-approved lenders or
highly regarded organizations like Fannie Mae.
However, anyone interested in a reverse mortgage
is encouraged to speak with a HUD-approved
housing counseling agency first.
10. 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 counseling and free referral to a list
of HUD-approved lenders.
Before you agree to pay a fee for a simple
referral, call 1-888-466-3487, toll-free,
for the name and location of a HUD-approved
housing counseling agency near you.
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