Reverse Mortgages

Homeowners aged 62 and older may qualify for an FHA-insured Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage. This type of mortgage allows a senior citizen with equity in a home to receive loan advances against his or her equity in the form of a lump sum or a monthly payment made to the homeowner.

The homeowner does not have to pay back the loan until he or she moves from the property or dies. The lender gets paid back only when the home is sold.

The loan is not funded directly by FHA, but by a lending institution, which receives a guarantee from the FHA. To qualify for an FHA-insured HECM, seniors must own their property, occupy it as their primary residence, and attend an information session. The amount you can receive depends on the value of the property, the current interest rate, and the age of the youngest borrower on the loan.

There are no income or credit qualifications to receive a reverse mortgage, since there are no payments that must be made. Additionally, the closing costs may be rolled up into the mortgage.

Homeowners may choose to receive a tenure-based reverse mortgage, which provides monthly payments to the borrower for life, or for as long as they live in the property; or a term-based reverse mortgage, which provides monthly payments for a fixed period of time.

Borrowers may also elect to receive a line of credit, against which they may draw until the credit line is depleted. Borrowers may also combine these options to receive a line of credit along with monthly payments.

When the home is sold after the borrower moves out or dies, the lender will be repaid. If, in the unlikely event, the borrower has received greater than the home’s value, the borrower cannot take any other assets or request payment from heirs; the borrower would be repaid the balance from the guarantor, in this case, FHA. If there is an equity balance left over after the lender is repaid, the balance would go to the borrower’s heirs.