FHA Loan Articles

FHA Reverse Mortgages: Getting Paid and Paying Back

When you apply for an FHA reverse mortgage, you are borrowing money against the equity in your home. The FHA reverse mortgage is also known as an FHA HECM loan, which stands for Home Equity Conversion Mortgage.

This kind of equity conversion loan is guaranteed by the FHA. Borrowers who sell the home repay the FHA reverse mortgage out of the proceeds of the sale. There are no payments made for as long as the borrower uses the home as their primary residence. One of the most attractive things about the FHA HECM or reverse mortgage loan is that you never take the risk of going into debt--if the sale of your home isn't enough to cover the amount of the loan plus interest, the FHA steps in to cover the rest. That covers paying back the loan, but what about the amount of the loan itself?

DO I GET THE ENTIRE AMOUNT OF MY HOME'S EQUITY?

The amount of your loan depends on the appraised value of your home and current interest rates. Age is also a factor. The minimum age for FHA reverse mortgage applicants is 62. The youngest approved borrower won't qualify for as much as an older borrower, but you may still qualify to borrow against a substantial portion of the equity in your property. The more valuable your home is, the more money you can potentially borrow.

CREDIT REQUIREMENTS

It's easy to get confused on the credit requirements for an FHA reverse mortgage. As with any loan, one factor that determines your eligibility for an FHA reverse mortgage is your credit report. It's important to note that your specific credit score is not used to approve or deny you an FHA HECM loan, but if your credit report shows outstanding delinquent debts to federal agencies, you will not be approved. You cannot be delinquent on ANY federal debt; approval is granted only to those who are current on payments such as federal income tax or other outstanding debts.

HOW DO I GET PAID?

FHA reverse mortgage borrowers have a variety of options to get their money once the loan has been approved and closed.

• Tenure lets you receive equal monthly payments for the lifetime of the loan


• Term provides equal monthly payments for a specific number of months


• Modified Tenure is a line of credit (see below) combined with monthly payments


• Modified Term is a line of credit plus monthly payments for a specific number of months


• Line of Credit lets you take money in "unscheduled installments" much like a checking or credit card account

Once you choose your payment option, many lenders are willing to alter them later, but you may be charged a fee. Ask before you decide about the ability to change payment schedules or types--your lender may have specific requirements.

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