The Department of Housing and Urban Development (HUD) has a number of options for people who are seeking to use their home equity for different reasons. One of the ways that they do so is through their Home Equity Conversion Mortgage Program (HECM). This is a reverse mortgage program that allows older adults to withdraw some of the equity in their homes. The point of this program is to help older adults have financial security in their retirement. Who doesn’t want that, right?
Let’s take a closer look at the HECM program and reverse mortgages in general, and see if they are a viable option for you and your family in your retirement.
What is a Reverse Mortgage?
Reverse mortgages are actually very interesting. These are special home loans that allow you to convert some of the equity in your home into cash that you can use. Essentially, you get to borrow back some of the money that you’ve paid into your mortgage. If you are looking to move to a smaller or different home, you can use an HECM loan to purchase the residence you are looking to move into.
Instead of a traditional equity loan, however, you don’t have to pay off the HECM loan until the borrowers are not using the home as their residence anymore. Another difference is, with a second mortgage, or a home equity line of credit, borrowers must have adequate income to qualify for the loan, and they make monthly payments on the principal and interest. Reverse mortgages actually pay you instead of you paying them.
And if you are concerned, any of the equity left on your home when you pass away is given to your heirs. You don’t have to worry about them accruing any debt on account of your reverse mortgage.
Eligibility and Requirements
In order to be eligible for the FHA’s HECM reverse mortgage, there are a number of requirements that you have to fall into.
• You must be a homeowner that is 62 years of age or older.
• You have to either completely own your home or have a low balance that can be paid off from the reverse mortgage.
• You must live in the home.
• You have to talk through the process with a HECM counselor, trained and certified by HUD.
• Your home must be a single family home, a 2-4 unit home with one unit that the borrower(s) live in, or a HUD approved condominium or manufactured home.
If you meet the requirements, then HUD will use the following items to determine how much money you can borrow in a reverse mortgage.
• Age of the youngest borrower
• Current interest rate
• Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price
• Initial Mortgage Insurance Premium
Then, after the amount of money has been determined, you decide how you want it paid. Here are the five ways that you can get your reverse mortgage paid to you.
• Tenure payments, which are monthly as long as one borrower is alive.
• Term payments, which are monthly in a set period of time (the “term”).
• Line of credit, which is how much money you have available, using it until it is all gone.
• Modified tenure, which is a cross between a line of credit and a tenure payment.
• Modified term, which is a cross between a line of credit and a term payment.
As you can see, the entire process is quite simple. If you need more information about reverse mortgages through the HECM program, contact the Department of Housing and Urban Development (HUD). If you are looking for a loan that will help you purchase a home, or if you are looking to refinance your already existing loan, contact us at 1-800-505-8121 or visit us online at www.EvoqueLending.com.