A reverse mortgage is a type of home financing that allows you convert a portion of the equity in your house into cash. However, unlike a traditional home loan,second mortgage or line of credit, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. 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.
To be eligible for a FHA HECM (Federal Housing Administration), the FHA requires that you be at least 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, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.
To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible for financing with HECM.
With a second mortgage, or a home equity line of credit, borrowers make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums only.
Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.
When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs even if the amount owed on the HECM is greater than the proceeds of sale.
The amount varies by borrower and depends on:
- Age of the youngest borrower or eligible non-borrowing spouse
- Current interest rate;
- Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price
If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount that you can borrow.
FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender. Services rendered by HECM counselors are free or at a low cost. To locate a HECM counselor (complete reverse mortgage submission form)
For adjustable interest rate mortgages, you can select one of the following payment plans:
- Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term- equal monthly payments for a fixed period of months selected.
- Line of Credit- unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
- Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home.
- Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.
- Single Disbursement Lump Sum – a single lump sum disbursement at mortgage closing.