HUD Reverse Mortgage
Reverse Mortgages are a special type of mortgage designed for people who are 62 years and older and who own a home. The Reverse Mortgage lets the homeowner access the equity they have built in the home without having to repay the loan or make any payments for as long as you stay in your home.
Qualification for the Reverse Mortgage:
All borrowers must be at least 62 years or older
Must own the home. If there are any existing liens or delinquent federal debt will have to be paid off with the loan proceeds
No income or credit qualifying requirements
Must attend home counseling
A Reverse Mortgage has several flexible payment options:
Tenure Option - Receive equal monthly payments for the rest of your life as long as you occupy the property as your primary residence
Line of Credit - Draw cash from the reverse mortgage whenever you need it. Interest is only charged on the amount borrowed
Fixed Term - Receive equal monthly payments for any fixed period of time
Lump Sum - You can receive all the proceeds at close of escrow
Modified payment option - You can take any combination of the above payment options
You can change your payment plan at anytime during the life of the loan
More on Reverse mortgage:
Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining are eligible to participate in HUD's reverse mortgage program. The program allows homeowners to borrow against the equity in their homes.
Homeowners can receive payments in a lump sum, on a monthly basis (for a fixed term or for as long as they live in the home), or on an occasional basis as a line of credit. Homeowners whose circumstances change can restructure their payment options.
Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the borrower lives in the home. Mortgage companies 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. If the sales proceeds are insufficient to pay the amount owed, HUD will pay the company the amount of the shortfall. The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage.
The size of reverse mortgage loans is determined by the borrower's age, the interest rate, and the home's value. The older a borrower, the larger the percentage of the home's value that can be borrowed.
For example, based on a loan at an interest rate of 9 percent, 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 of the home's value, and an 85-year-old could borrow up to 56 percent of the home's value.
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. However, the amount that may be borrowed is capped by the maximum FHA mortgage limit for the area, which varies from $81,548 to $160,950, depending on local housing costs. 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 borrowers. Senior citizens are charged 2 percent of the home's value as an up front payment plus one half percent on the loan balance each year. These amounts are usually paid by the mortgage company and charged to the borrower's principal balance.
FHA's reverse mortgage insurance makes HUD's program less expensive to borrowers than the smaller reverse mortgage programs run by private companies without FHA insurance.