Obtaining a Reverse mortgage is increasing in popularity with individuals 62 years of age or older can use to turn the equity in their home into cash. It is very important for an individual to understand a reverse mortgage, their ramifications, and the alternatives. Our site will provide an overview of how to obtain a reverse mortgage. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage or HECM, and is only available through an FHA approved lender.
The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program which enables you to withdraw some of the equity in your home. You choose how you want to withdraw your funds, whether in a fixed monthly amount or a line of credit or a combination of both.
You can also use a HECM reverse mortgage to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM reverse mortgage proceeds and the sales price plus closing costs for the property you are purchasing.
HECM Reverse Mortgage
HECM reverse mortgage counselors will discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM reverse mortgage. They will also discuss provisions for the reverse mortgage
With a traditional second mortgage, or a home equity line of credit, 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, sales price or FHA’s mortgage limits, whichever is less. The more valuable your home is, and the older you are, the lower the interest, the more you may borrow.
HECM Reverse Mortgage
With a HECM reverse mortgage, you don’t make monthly principal and interest payments, the lender pays you according to the payment plan you select. Like all homeowners, you still are required to pay your real estate taxes, insurance. With an FHA HECM you cannot be foreclosed or forced to vacate your house.
With a regular home loan you pay a monthly amount (principal and interest). With each month, the amount that you owe goes down and the equity in your home goes up. With a reverse mortgage you can receive money from the equity from your home. You do not have to make monthly payments. The cash may be paid to you in one or more of the following ways:
- As a single lump sum payment
- As a regular monthly amount (a cash advance)
- As a credit line account that you draw upon as needed
A reverse mortgage should not be confused with a home equity loan or home equity line, both of which are other ways of obtaining money for the equity in your home. With either of these loan options, an individual must pay at least monthly interest on the loan amount received, or amount that they have drawn on their equity line.
Unlike ordinary home equity loans, a FHA reverse mortgage HECM does not require repayment as long as the home is your principal residence and the obligations of the mortgage are met. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to you or your heirs. With a reverse mortgage the “lender” does not get to “keep” your home.
If the sales proceeds are insufficient to pay the amount owed, FHA will pay the lender the amount of the shortfall. FHA collects an insurance premium from all borrowers to provide this coverage.
HECM borrowers can choose an adjustable interest rate or a fixed rate. If you choose an adjustable interest rate, you may choose to have the interest rate adjust monthly or annually. Lenders may not adjust annually adjusted HECMs by more than 2 percentage points per year and not by more than 5 total percentage points over the life of the loan. FHA does not require interest rate caps on monthly adjusted HECMs.
The HECM product is insured by HUD and the FHA. This product represents over 90% of all reverse mortgages. HECM loan limits vary by community and are set by the FHA. There are also Reverse mortgages offered by state and local governments (often called “single purpose reverse mortgages”). These are typically the least expensive reverse mortgages. These may have the most restrictions on how the money received can be used.
Counseling is required in order to obtain certain types of reverse mortgages. Counseling is required before an individual can obtain a Federally-insured Home Equity Conversion Mortgages (HECMs). Even if counseling is not required for a particular reverse mortgage, individuals thinking of getting a reverse mortgage should seek either counseling or the advice of a qualified financial adviser.
When you sell your home, 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.
Call us to go over your options on a reverse mortgage. We have experienced agents ready to answer all your questions. With offices to handle your reverse mortgage in San Diego and Los Angeles and Riverside we can handle your reverse mortgage needs.Thank you for visiting our site about obtaining a Reverse Mortgage.