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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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Reverse
mortgages are becoming popular in America. HUD's Federal Housing
Administration (FHA) created one of the first. The Home Equity Conversion
Mortgage (HECM) is FHA's reverse mortgage program which enables you to
withdraw some of the equity in your home. The HECM is a safe plan that can
give older Americans greater financial security. Many seniors use it to
supplement social security, meet unexpected medical expenses, make home improvements and more. You can receive free
information about reverse mortgages in general by calling AARP toll free at
(800) 209-8085. Since your home is probably your largest single investment,
it's smart to know more about reverse mortgages, and decide if one is right
for you! 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 (800) 569-4287 for the name and telephone number of a
HUD-approved counseling agency and a list of FHA-approved lenders within your
area. 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 (800) 569-4287 toll-free, for the name and location of a HUD-approved
housing counseling agency near you. 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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