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Financial Newsweek |
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Top Ten Things to
Know if You're Interested in a Reverse Mortgage |
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1.
What is a reverse mortgage? A reverse
mortgage is a special type of home loan that lets you convert a portion of
the equity in your home into cash. The equity that built up over years of
home mortgage payments can be paid to you. But unlike a traditional home
equity loan or second mortgage, no repayment is required until the
borrower(s) no longer use the home as their principal residence. FHA's HECM
provides these benefits. You can also use a HECM to purchase a primary
residence if you are able to use cash on hand to pay the difference between
the HECM proceeds and the sales price plus closing costs for the property you
are purchasing. 2.
Can I qualify for FHA's HECM reverse mortgage? To be
eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of
age or older, own your home outright, or have a low mortgage balance that can
be paid off at closing with proceeds from the reverse loan, and you must live
in the home. You are further required to receive consumer information from an
approved HECM counselor prior to obtaining the loan. You can contact the
Housing Counseling Clearinghouse on 3.
Can I apply if I didn't buy my present house with FHA mortgage insurance? Yes. It
doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new
FHA HECM will be FHA-insured. 4.
What types of homes are eligible? To be
eligible for the FHA HECM, your home must be a single family home or a 1-4
unit home with one unit occupied by the borrower. HUD-approved condominiums
and manufactured homes that meet FHA requirements are also eligible. 5.
What's the difference between a reverse mortgage and a bank home equity loan? With a
traditional second mortgage, or a home equity line of credit, you must have
sufficient income versus debt ratio to qualify for the loan, and you are
required to make monthly mortgage payments. The reverse mortgage is different
in that it pays you, and is available regardless of your current income. The
amount you can borrow depends on your age, the current interest rate, and the
appraised value of your home or FHA's mortgage limits for your area,
whichever is less. Generally, the more valuable your home is, the older you
are, the lower the interest, the more you can borrow. You don't
make payments, because the loan is not due as long as the house is your
principal residence. Like all homeowners, you still are required to pay your
real estate taxes, insurance and other conventional payments like utilities.
With an FHA HECM you cannot be foreclosed or forced to vacate your house
because you "missed your mortgage payment." 6.
Can the lender take my home away if I outlive the loan? No. You do
not need to repay the loan as long as you or one of the borrowers continues
to live in the house and keeps the taxes and insurance current. You can never
owe more than the value of your home at the time you or your heirs sell the
home. 7.
Will I still have an estate that I can leave to my heirs? When you
sell your home, you or your estate will repay the cash you received from the
reverse mortgage plus interest and other fees, to the lender. The remaining
equity in your home, if any, belongs to you or to your heirs. 8.
How much money can I get from my home? The amount
you can borrow depends on your age, the current interest rate, and the
appraised value of your home or FHA's mortgage limits for your area,
whichever is less. Generally, the more valuable your home is, the older you
are, the lower the interest, the more you can borrow. You can use an online
calculator like the one on the AARP website to get an idea of what you
may be able to borrow. 9.
Should I use an estate planning service to find a reverse mortgage? FHA does
NOT recommend using any service that charges a fee for referring a borrower
to an FHA lender. FHA provides this information free, and HUD-approved
housing counseling agencies are available for free or at very low cost, to
provide information, counseling, and a free referral to a list of
FHA-approved lenders. Search online
or call 10.
How do I receive my payments? You have
five options:
Source:
U.S.
Department of Housing and Urban Development (HUD) Find the address of a HUD office near you |
Related information: New
guidance
issued on reverse mortgages (August 2010)
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