If you are 62 yrs old or older and would like to access the equity in your home, then keep reading because an FHA Reverse Mortgage (or HECM) may be for you. You may also use an FHA Reverse Mortgage – HECM to finance the purchase a new primary residence.
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How an FHA Reverse Mortgage Works
First, you will need to meet with an HECM counselor to discuss whether you are eligible for the program, how it will impact you financially and what the alternatives are. They will make sure that you are properly educated on the process and implications of obtaining an FHA Reverse HECM Mortgage. The HECM counseling fees vary but must be reasonable and customary. You can anticipate paying about $125 for this counseling session. You can search for an HECM Counselor.
FHA Reverse Mortgage – HECM Requirements
The basic requirements are as follows:
- You must be 62 years old or older.
- The home must be your primary residence at the time when you apply for and close on the loan.
- You must either own the home completely or have a very small mortgage balance remaining.
- You cannot be past due on any federal debt.
- You must have the financial capability of making the FHA Reverse Mortgage payments on time including any taxes, insurance, and homeowners association fees (if applicable).
- As mentioned above, you must also go through the counseling process with an approved HECM Counselor.
FHA Reverse Mortgage – Property Requirements
- The property being financed must meet ALL of the FHA Reverse Mortgage property requirements referenced below.
- It must be a single family home or a 2-4 unit home where at least one of the units is occupied by you.
- If the property is a condo, it must be a HUD approved condo.
- If the property is a manufactured home, it must also meet FHA Requirements.
FHA Reverse Mortgage – Financial Requirements
- Income and assets must be verified
- Living expenses must be documented and will be taken into consideration
- Your credit history will be verified and considered
- You must be making on time payments of your real estate taxes at the time of application
- You must verify that you have hazard insurance and flood insurance if applicable
Types of FHA Reverse Mortgages
Adjustable Interest Rate FHA Reverse Mortgage – There are many different options available here.
- You can receive equal monthly payments as long as you occupy the property as your primary residence.
- Equal monthly payments for a pre-determined number of months.
- A line of credit where you draw the money from your account at any amount or frequency that you choose.
- A modified tenure where you have a combination of a fixed payment and a line of credit.
Fixed Rate FHA Reverse Mortgage – Here you get one lump sum payment at closing. The age of the youngest borrower is used to qualify and the maximum mortgage limit is the lesser of the appraised value or $679,650.
Costs for an FHA Reverse Mortgage – HECM
You may roll the costs into the loan so you do not have to pay anything out of pocket. However, this does reduce the amount you can borrow by the total of those costs.
The basic fees are as follows:
- Initial and annual mortgage insurance premiums
- Various third party charges such as an appraisal, title search, insurance, inspections, recording fees, credit checks, etc. These are just a few examples of what you may have to pay for.
- HECM Origination fees whereby a lender can charge the greater of $2,500 or 2% of the first $200,000 of your homes value, plus an additional 1% of any amount over $200,000 with a cap of $6,000. So, if your home is worth $350,000, then the origination fees could be $3,500.
- FHA Reverse Mortgage Servicing Fee – Lenders may charge up to $30 per month to help make sure that all of your payments including taxes and insurance are being made on time. If your HECM loan adjusts monthly, then the lender may charge up to $35 for the service fee. The service fee can be added to your loan balance and does not have to be paid out of pocket.
Hopefully this was useful information for you to consider an FHA Reverse Mortgage or HECM loan.
Frequently Asked Questions
Do both borrowers need to be 62 years old? No, only one of the borrowers does unless you are taking out the entire loan balance as a lump sum, then both need to be 62 yrs old.
Why is HECM counseling required? They want to make sure that you are fully educated on how the program works and whether this is right for you.
What is a reverse mortgage and why is it different? In the case of an FHA Reverse mortgage, the bank makes payments to you rather than you making payments to the bank.
Can the home be passed to my heirs if a reverse mortgage is attached? Yes, but they must repay the loan balance or refinance the home into their name.
How much money can I draw from my home value? The lesser of the appraised value or the HECM FHA mortgage limit/maximum of $679,650
Is it safe? I hear horror stories about people losing their homes. It is absolutely safe and you can never be kicked out of your home. You are protected and so is the bank which is why you have mortgage insurance premiums.
We are able to help you to find a reverse mortgage with the best reverse mortgage lenders in the following states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming.
Types of Reverse Mortgages – CFPB
Who Can Apply For an FHA Reverse Mortgage? – FHA News
Learn About Reverse Mortgages – Ohio Department of Commerce