As of May 2021, more than 1.2 million seniors had taken out a Home Equity Conversion Mortgage (HECM), commonly referred to as a reverse mortgage.2 If you or someone you know is interested in accessing their housing wealth, a reverse mortgage may be the answer.
Below are some key facts that can help you determine if it may be the right fit:
What is a Reverse Mortgage Loan?
A reverse mortgage is a loan that allows homeowners, age 62 and older, to access a portion of their home’s equity while eliminating their monthly mortgage payments.3 A HECM is a type of reverse mortgage that is insured by the Federal Housing Administration (FHA).4 There are also reverse mortgages for borrowers with higher home values (above the FHA-insured limit of $822,375). These are known as proprietary or jumbo reverse mortgage loans.
You Continue To Own Your Home3
You continue to retain the title and ownership of your home during the life of the loan. You can sell your home at any time-selling your home prior to full payment of the loan will cause the loan to become due and payable at the time of sale. Keep in mind the lender will add a lien onto the title to ensure payment, just like a traditional mortgage.
Reverse Mortgage Payout Options to Choose From
With a fixed-rate loan, you can receive your loan proceeds in a lump sum. With an adjustable-rate loan, you can select from the following options to receive your loan proceeds.
Tenure – provides equal monthly payments.
Term – provides equal monthly payments for a fixed period of months selected by the borrower.
Line of Credit – can be drawn at any time and in any amount of your choosing until the line of credit is
Modified Tenure – is a combination of line of credit plus scheduled monthly payments.
Modified Term – is a combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
Reverse Mortgage Financial Assessment
All reverse mortgage applicants will undergo a financial assessment. The Department of Housing and Urban Development (HUD) requires a financial assessment to evaluate the borrowers’ willingness and capacity to meet their financial obligations and mortgage requirements.5 During the financial assessment, the lender will verify items such as income, taxes, and credit history. Although a HECM reverse mortgage does not require a minimum credit score, your credit history is reviewed for current and/or outstanding credit obligations to determine your debt-to-income ratio. In some cases, and as required by FHA, a portion of the loan proceeds may be put into what is called a Life Expectancy Set Aside (“LESA”), to assist and ensure the Borrower can pay required property taxes and homeowners insurance.
Use a Reverse Mortgage to Purchase Your Next Home
A HECM for Purchase is an option available to help homeowners buy their next home using the loan proceeds from a reverse mortgage. The loan allows borrowers to use the equity from the sale of a previous residence to buy their next primary home in one transaction, with one initial investment (commonly known as the down payment).
Are you interested in accessing your home’s equity? Call 1-800-976-6211 to speak with a licensed loan officer who can help provide you with a free, no-obligation loan assessment to see if a reverse mortgage could be the right financial solution for you or someone you know.
3 Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing. You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
4 As required by the Federal Housing Administration (FHA), you will be charged an initial mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
5 U.S. Department of Housing and Urban Development, Mortgagee Letter 2013-27, https://www.hud.gov/sites/documents/ML13-27.PDF