Reverse Mortgages are a type of home loan. Most reverse mortgages are a HUD/FHA insured home loan that allows you to liquidate some of your equity in order to payoff existing mortgages as well as generate additional cash flow. They are called HECM Loans. HECM stands for Home Equity Conversion Mortgage.
There are 2 types of HECM Loans.
- HECM Standard (higher loan amounts and 2% Upfront MIP*)
- HECM Saver (reduced loan amounts and .01% Upfront MIP*)
Reverse Mortgages are regulated and insured by the Federal Housing Administration (FHA). By law, you can never be forced to sell your home of move. You will always retain the title to your home, and you can still leave your home to your children or whoever you choose. There is almost no risk of losing your home. The homeowners obligations are threefold:
- Live in the home as your Primary Residence (at least one spouse must live in the home)
- Keep the home insured and property taxes current.
- Keep the home in good condition.
- Senior Homeowners with enough equity, over the age of 62.
- Most 1 to 4 family Residences qualify.
- FHA Approved Condominiums
- Post 1976 Manufactured Homes on their own lots.
Some of the best features of an FHA Reverse Mortgage are the methods that you can access the equity in your home!
- Lump Sum - (The only option on the Fixed Rate Reverse) Take all the money you are entitled to at the close of escrow.
- Tenure Payments - Monthly payments to the homeowner for as long as they live in the home.
- Credit Line - Leave the funds in a line of credit (that has a guaranteed growth feature) to be accessed as you need it.
- Term payments - specific amount of money for a specific term.
- Any combination of the options listed above.
As with all other FHA Home Loans, a reverse mortgage is a "Non Recourse" loan. This means that the lenders only security for repayment of the loan is the home itself. The lender has no rights to lien any other assets of the borrower or their estate. Only the home itself can be used as the lenders recourse to a foreclosure. If the home is worth less than the outstanding balance of the reverse mortgage then the lender must go to FHA for reimbursement of any loss. The loss will not generate any judgements or liens against the borrower or their heirs.
* Upfront MIP is based upon either 2% or .01% of the home value or lending limit, whichever is less. There is also a monthly premium equal to 1.25% per annum of the loan balance, making the "effective" interest rate of the loan 1.25% higher than the note rate. Very similar to the forward FHA mortgage, but in reverse the interest and MIP just accrue as no payments are required. You CAN make payments if you like though and that can be a good idea especially with the adjustable reverse.
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
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iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.