Many seniors today are looking for a way to supplement their income so they can more
thoroughly enjoy what remains of their life. While retirement plans and social security benefits
help with this, there is often another investment that is overlooked. This investment is the home.
Oftentimes by the time a person is in his sixties, the home has tens of thousands of dollars of
equity and in some cases, it is even paid off. An FHA reverse mortgage makes it possible for the
homeowner to use his equity to supplement his income, instead of waiting for that equity to pass
to a loved one after he is gone.
What is an FHA Reverse Mortgage?
A reverse mortgage is simply a loan that is taken out on the home for some or all of the existing
equity. It is also known as a home equity conversion mortgage (HECM). It is not a home equity
loan and it is not a mortgage, which means that it does not have to be paid back immediately.
Instead, the loan will be repaid after the borrower stops residing in the home or after the
obligations he has agreed to can no longer be met.
The HECM is not available for just any homeowner. It is only for senior citizens who are at least
62 years old and who have either paid off their home, or who have a very small amount left on
the mortgage. Once the loan is approved, part of it will be used to pay off the remaining balance
of the original loan.
Before you can be approved for an FHA reverse mortgage you will need to meet with an HECM
counselor to discuss the implications of the loan you will be taking out as it will affect your
present and future financial situation. With this counselor you will discuss your finances, the
eligibility requirements for the program, and any options that may be available for you to take
advantage of before seeking a reverse mortgage.
Once you’ve been approved for an HECM the amount that is paid out will be determined using the following four factors. First, the age of the youngest borrower. Second, the current interest
rate. Third, either the appraised value of the home or the mortgage limit which is $625,500, whichever is less of the two. And fourth, the mortgage insurance premium. These factors are all assessed when deciding on the amount of the loan.
As mentioned above you must be at least 62 years old before you can qualify for n HECM loan
and you must have a fair amount of equity in the property. Additional requirements state that the
home you are pulling the equity out of must be your primary residence. Financially you cannot
have any existing federal debt that you are delinquent on. If you are in this situation, you will
need to get those delinquencies taken care of before you can apply for the loan. In addition to this, you will need to prove that you have sufficient funds available or coming in that you can use
to keep up on all the necessary payments on the property, such as taxes and insurance.
If you meet the requirements for the loan, the next step will be to determine whether or not the
property itself will qualify. To begin with, the property has to be a single family residence. The
Federal Housing Administration works with single family homes that are no bigger than four
units. Anything larger than this falls into a different category and will not be insured through this
federal administration. Additionally, this property will have to meet all of the housing standards
established by the federal government. An appraisal will more than likely need to be made on the
home to determine whether or not it is eligible for the FHA reverse mortgage program.
Keep in mind that though the HECM isn’t a traditional loan, you do have to prove that you are
capable of handling the loan just as you would if you were seeking a new loan on a new home.
This means that your income, living expenses, credit history, and assets will be analyzed and
your credit history will be studied to make sure that you have been responsible in taking care of
those expenses that come with owning a home. If you meet the necessary qualifications, the
reverse mortgage can be a great way to make it possible for you to live a better life, enjoying the
time you have left.