05/25/2010 Reverse mortgage program offered by the FHA (Federal Housing Administration). The FHA reverse mortgage program is similar to those offered by conventional refinance lenders. But it has several key differences. The first difference is the name. The FHA's version of a reverse mortgage is called a Home Equity Conversion Mortgage, or HECM. Another key difference is the protection offered. Since HECM's are insured by the FHA, borrowers never have to repay their lender an amount that exceeds the property's value at the time of sale. When necessary, the FHA pays the difference. If the sale results in a profit, any amount remaining after the HECM lender is repaid goes to the borrower's heirs.
Like most reverse mortgages, the FHA's version is available to any borrower age 62 or older. The borrower must own outright the home being used to determine equity or have only a small mortgage balance left. The house must be the borrower's primary residence. The borrower can't owe any federal debt. And finally, the borrower must participate in a mandatory session with a certified loan counselor which can be arranged through HUD. The goal of the session is to understand both the positive and negative implications of this type of loan.
A formula is used to determine the amount that can be borrowed. The formula is based on several factors including the home's appraised value OR the HECM's loan limits, whichever is less. Also used to determine the loan amount is the interest rate and the youngest borrower's age. Older homeowners who have a lot of equity in their primary residences are able to borrow the most. The amount borrowed using a HECM does not usually need to be repaid while the borrower resides in the home. Instead, repayment is due upon the borrower's death or when the borrower sells the home. Once either happens the loan is repaid from the proceeds of the home's sale.
Five different loan payment options are available including equal monthly payments, home equity line of credit which the borrower can draw against, or a combination of each. Funds can be spent anyway the borrower chooses. If you're interested in an HECM, you can apply with any lender approved by the FHA home loan program to offer this type of mortgage product. Remember, taking time to shop around for the best deal can save you money.
