FHA Reverse Mortgage
Convert Your Equity into Income
Established in 1934, The Federal Housing Administration (FHA) offers mortgage insurance on loans through FHA-approved lenders. The FHA provides this coverage for single and multi-family homes, and other approved purchases. The FHA does not issue loans, but FHA mortgage insurance is quite attractive for a prospective lender.
The main reason for this is simple; FHA mortgage insurance protects the lender's investment should a homeowner default on the mortgage. Loans insured by the FHA feature low down payments, and costs for FHA mortgage insurance are built into the mortgage payment. Those costs disappear five years into the loan or when the loan reaches 78% of the property value (whichever is longer).
An FHA reverse mortgage is designed for homeowners age 62 and older. It allows the borrower to convert equity in the home into income or a line of credit. The FHA reverse mortgage loan is also known as a Home Equity Conversion Mortgage (HECM), and is paid back when the homeowner no longer occupies the property.
There are requirements for an FHA-insured reverse mortgage or HECM;
- The loan is based on the age of the youngest borrower if there are co-signers.
- Homeowners are required to get consumer counseling and education before a HECM loan is approved.
- Borrowers must own and live on the property as the primary residence.
Unlike other FHA loans, there are no income or credit qualifications for this type of loan. You will be required to have a current appraisal on the property as the amount of an FHA reverse mortgage is based on the home's value or the FHA insurance limit, whichever is lower. The FHA reverse mortgage;
- Is a loan based on current interest rates.
- Allows closing costs to be financed in the reverse mortgage.
- Is for single-family homes or up to a four-unit home, but must be occupied by the borrower.
- Is also permitted for FHA-approved condominiums and manufactured homes.
FHA reverse mortgages or HECM loans require the home to conform to FHA property standards and flood requirements. The FHA reverse mortgage has a variety ways the borrower can receive the money including monthly payments, a line of credit, or combinations of payments and credit. The borrower does not pay on these loans until the house is sold. The loan is repaid from the proceeds of the property sale including interest. Any remaining equity in the home after the loan has been repaid belongs to the homeowner.
If there is not enough money from the sale of the home to repay the loan in full, FHA insurance is used to pay the difference. If you need further clarification of the details of an FHA reverse mortgage, ask your loan officer to explain before you sign.
SEE YOUR CREDIT SCORES From All 3 Bureaus
Do you know what's on your credit report?
Learn what your score means.
FHA Loan Articles and Mortgage News
June 26, 2020 - The FHA reverse mortgage loan program is known as the Home Equity Conversion Mortgage or HECM for short. Lots of people are interested in reverse mortgages--but who qualifies for the FHA version of the reverse mortgage and how do you know if your home is eligible for the loan?
June 25, 2020 - Refinancing can save you money in interest payments over the long term. It can also provide a lower monthly payment or result in cash back to the borrower once the original loan has been paid off and the associated closing costs dealt with.
June 20, 2020 - Comparing rates is a very good thing to do when shopping around for a lender but knowing why government-backed loans such as FHA mortgages, USDA loans and VA loans have lower interest rates for highly qualified borrowers is an important factor.
June 18, 2020 - In the second week of June, FHA mortgage rates were reported below three percent--something that in years past would have been considered surprising, but with the 2020 rollercoaster ride it’s not so strange to those used to watching the markets.
June 12, 2020 - What does it mean for mortgage rates to drop so low? There are a variety of factors that have contributed to these low rates but the most important thing to understand is that those numbers are subject to change--sometimes quickly, sometimes not.
