What are HUD’s Reverse Mortgages?

Reviewed: February 06, 2015
By FinanceWeb

After retiring from a workplace, or when money is a little tight, senior citizens can find that there are financial opportunities that are designed for their specific goals and concerns. An option that can help when an individual or couple needs a little extra income is a HUD reverse mortgage.

What are Reverse Mortgages?

A reverse mortgage is a financial option that will offer extra funds to help with unexpected costs or additional living expenses. Only senior citizens are eligible for the mortgage.

As the name implies, the mortgage works in a reverse philosophy. A bank, or mortgage lender, will make monthly payments or several large payments for a property that an individual already owns. Essentially, the equity on the house is used to finance the loan amount. The loan amount that is offered to the individual will depend on the value of the house and the interest rate that is applied to the account.

The individual and their family members continue to live in the house until they decide to sell the property or until the owner is no longer able to live in the house for any reason.

Qualification Requirements

A home equity conversion mortgage, or a HECM, has specific requirements that an individual must follow to obtain the funds. The owner of the house must be at least 62 years old or older and he or she must live in the property. If he or she moves, then the property is sold and the mortgage is repaid. Any additional funds for the sale price are given to the property owner after settling the loan amount.

The lender will also require proof of ownership and the house must be paid off or must have a low enough remaining balance to pay off with the loan as soon as it is completed.

Obtaining the Loan

A HUD reverse mortgage is available to qualifying parties based on their situation and their goals. The property owner will talk about the loan to a qualified HECM counselor before the loan is available. A free reverse mortgage calculator can help determine the amount that the property owner can expect each month. An FHA approved lender will then provide details about the loan options that are available and the standards that the owner must follow to obtain the funds.

The funds are usually paid on a monthly basis to the owner or a payment schedule that is selected before the funds are provided. When the owner moves out of the property, it is sold and the loan is repaid with the sale price.

Applying for a home equity conversion mortgage can provide the opportunity to avoid financial challenges and obtain some extra funds for retirement plans. The key is recognizing the loan options that are available and determining when a reverse mortgage is appropriate for the goals of a specific property owner.