The United States Department of Housing and Urban Development (hereinafter “HUD”) provides a reverse mortgage program to help homeowners use the equity in the home while retaining ownership and continuing to occupy it. A reverse mortgage is a loan based upon the value of a home; it can improve financial security for older American homeowners. As income, one can use it to supplement a fixed income like social security or pension. One can use a reverse mortgage to purchase a new residence by paying the balance of the purchase price from cash on hand.
Who Can Use It
The reverse mortgage loans are available for eligible owners of qualified properties. Both the owners and the property must pass federal rules. Eligible homes are single family, two to four unit homes, if the borrower occupies one unit, and HUD-approved modular homes and condominiums. Eligible homeowners can use the Home Equity Conversion Mortgage. Eligible homeowners are persons aged 62 or older who own a home outright or have only a small remaining balance. In addition, borrowers must show that they have resources to pay taxes, utilities and public fees, and to maintain adequate hazard and flood insurances.
Eligible Properties And Repayment Conditions
Eligible homes are single-family units, and two to four family homes in which the borrower must occupy one unit. An important feature of a reverse mortgage is that the borrowers do not have to repay funds until they no longer use the residence as a primary home, or if the borrowers fail to keep the terms of the loan, such as payment of taxes. The borrowers must repay the loan when they no longer use the property that supports the funding as the primary residence.
How To Use Federal Reverse Mortgages
One can find a lender through the HUD website or local HUD office. The program determines the value of the home by a qualified appraisal. The loan value of the home will be the lesser of the appraised value or the loan limit of $625,000. In addition, the amount depends upon the age of the younger borrower, the prevailing interest rates, and the amount of the initial insurance premium. Borrowers can choose the method of receiving funds. It is important to note that after the loan has matured and the lender sells the property, any balance above the amount needed to repay loan and interest reverts to the borrowers or their estates. The lender does not pass debt to the heirs of the estate of the borrowers.
Advantages and Disadvantages
One can best see the advantages of a reverse mortgage when compared to a home equity loan. Reverse mortgages provide payments to the borrower, but unlike an equity loan, the borrower does not have to make monthly payments to the lender. Thus, the reverse mortgage adds money to the borrower without requiring monthly payments. Borrowers can get funds in any one of five ways: one, a lump sum at settlement; two, the monthly payment for an agreed number of months; three, payment for every month of continued occupancy, for the tenure of the occupancy; and four, draw down against a line of credit. Last, one can mix these methods and have a partial payment by a number of months or tenure and a line of credit to be used as the borrower chooses.
Other Related Facts
Borrowers can get information on the program from the National Council on Aging as well as HUD and local offices. They can qualify for a reverse mortgage even though they did not buy their home through HUD or FHA. The borrowers have three days after closing to decides they prefer not to maintain the transaction. There is a three-day period for cancelling the agreement. Called a rescission period, borrowers can undo the transaction upon notice to the lender and completing a form to rescind the loan agreement. The borrower must discuss matters of the fees and details of winding-up the transaction with the lender.