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What is a Reverse Mortgage Loan?

A reverse mortgage is a unique loan that allows homeowner(s) 62 years of age and older to draw on the value of their home, which is paid to the homeowner(s) in a variety of payout options. One aspect of this loan is that it does not require repayment until the homeowner(s) no longer reside in the residence, the last surviving borrower passes away or does not comply with the loan obligations such as paying property taxes and insurance, and maintaining the property to FHA guidelines. Regulated by the U.S. Department of Housing and Urban Development (HUD), Home Equity Conversion Mortgages are insured by the Federal Housing Administration (FHA) and may help older qualified homeowners with increasing living expenses.

Home Equity Conversion Mortgage Loan (HECM)

A Home Equity Conversion Mortgage loan, or Reverse Mortgage, is a Federally-insured reverse mortgage loan backed by the U. S. Department of Housing and Urban Development (HUD). If you qualify, a HECM loan would enable you to withdraw a portion of your home’s equity. which can be used to pay for unexpected expenses, such as nursing home costs or long-term care. It could also provide you with additional cash flow for all the expenses you have. As long as all loan terms are met, the loan does not require repayment until the last surviving borrower permanently moves out of the home, or passes away. Some of the HECM Reverse Mortgage qualifications include: 

 

• Borrower(s) must be 62 years or older

• Must be a homeowner and either own home outright or have significant equity; must live in the home as  a primary residence (live there 6+ months per year)

• The property must be a single-family home, 2- to 4-unit dwelling or FHA-approved condo

• Must meet minimal credit and property requirements

• Must receive reverse mortgage counseling from a HUD-approved counseling agency

• Must not be delinquent on any federal debt

Home Equity Conversion Mortgage for Purchase Loan (H4P)

The HECM for purchase is a reverse mortgage insured by the Federal Housing Administration (FHA) that allows seniors to use the equity from the sale of a previous residence to buy their next primary home in one transaction. Regardless of how long you live in the home or what happens to your home’s value, you only make one initial investment (down payment) towards the purchase. However, you must continue to pay taxes and insurance (and homeowner association dues if applicable), and maintain the home.  This may allow you to:

  • Build a new customized home

  • Relocate closer to friends and family members

  • Purchase a home in a senior housing community

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  • Downsize to a smaller, easier-to-maintain home

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  • Purchase a primary residence suitable for your current needs

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  • Move into a new home that’s easily accessible with modern amenities

Home Equity Conversion Mortgage Line of Credit  (HECM LOC)

A regular home equity line of credit (HELOC) requires monthly payments, does not grow, and can be called due by the lender at any time. A reverse mortgage line of credit has a clear cut advantage over the HELOC, in that it has a growth option that applies to the unused funds. If you take this out at 62 rather than 82, and leave the funds to grow instead of using them, you could have a substantial credit line available in later years when you may need it most.

The Combination Home Equity Conversion Loan

A regular home equity line of credit (HELOC) requires monthly payments, does not grow, and can be called due by the lender at any time. A reverse mortgage line of credit has a clear cut advantage over the HELOC, in that it has a growth option that applies to the unused funds. If you take this out at 62 rather than 82, and leave the funds to grow instead of using them, you could have a substantial credit line available in later years when you may need it most.

 
 
 
 

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CLICK HERE to receive information about reverse mortgage loans and see if a reverse mortgage is right for you.