If you have been researching reverse mortgages you have probably come across terms like government-insured or FHA-approved; but, what role does the government really have with a federally insured reverse mortgage? To clarify, the only reverse mortgage loan that is insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM). Specifically, these loans are insured by the Federal Housing Administration (FHA)1 . The Department of Housing and Urban Development oversees FHA and regulates the HECM program. Although HUD regulates and FHA insures these reverse mortgage loans, they don’t actually offer or lend directly to consumers. A consumer must find an FHA-approved lender to obtain a HECM loan.
Benefits of Federally-Insured Reverse Mortgage Loans
The benefits of a reverse mortgage make it an attractive option for homeowners over the age of 62 who are looking for financial solutions.
- No Monthly Mortgage Payments Required2 – As long as the loan obligations are met, the balance does not become due until the last borrower or eligible non-borrowing spouse no longer lives in the home as their primary residence. At that time, the borrower or their heirs have the opportunity to keep the home by paying off the loan balance, sell the home and keep any remaining proceeds, or hand over the keys to the home to the lender (deed in lieu of foreclosure).
- Non-Recourse Loan – A HECM is a non-recourse loan. This means that the borrower will never have to repay more than the value of the home when the loan becomes due.
- Funds are Guaranteed – If the housing market conditions decline, any funds in a line of credit or monthly disbursements will never be reduced.
Benefits of HUD Oversight:
Borrowers can feel safe knowing that HUD has HECM program rules in place that lenders must follow. Lenders who do not abide by the rules often see their approval to offer HECM loans revoked.
Also, HUD seeks to ensure that borrowers who are considering a HECM reverse mortgage are well informed and understand their options. Part of this is requiring borrowers to complete a counseling session with a HUD approved counselor prior to moving forward with a HECM loan. This requirement ensures that borrowers receive unbiased information and guidance around the pros and cons of a HECM loan.
If you are a senior homeowner looking for an extra source of funds in retirement, an FHA insured reverse mortgage may be able to help you get the cash you need. To learn how much you qualify for and get answers to your questions, call 1.800.976.6211 or fill out the calculator above.
1 Federal Housing Administration (FHA) mortgage insurance premiums (MIP) will accrue on your loan balance. You will be charged an initial MIP at closing. The initial MIP will be 2% of the home value not to exceed $13,593. Over the life of the loan, you will be charged an annual MIP that equals .5% of the outstanding mortgage balance.
2 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.