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John Desmond

Reverse Mortgage FAQ

Thursday, July 26, 2012 - Article by: John Desmond - ENG Lending - Message

A Reverse Mortgage is a government backed mortgage program which allows eligible seniors to withdraw some of the equity in their home with no requirement to repay the amount lent until the borrowers no longer reside in the home. A Reverse Mortgage is a safe plan that can give older Americans greater financial freedom. Many seniors use it to supplement Social Security, meet unexpected medical expenses, and make home improvements and more.

ENG Lending provides a free booklet, "Use Your Home to Stay at Home," a guide for older homeowners who need help now. Call ENG Lending today at 888-407-1592 to find out more. It is smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, a Reverse Mortgage (also called a Home Equity Conversion Mortgage or "HECM") borrowers do not have to repay the 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.

2. Can I qualify for FHA's HECM reverse mortgage?
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 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, 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. ENG Lending will assign you a Reverse Mortgage specialist that can locate a HECM counselor in your area. Our identified specialist often know which agencies have received grant funds for this counselling, which could save you hundreds of dollars.

3. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?
Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.

4. What types of homes are eligible?
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.

5. What are the differences between a reverse mortgage and a home equity loan?
With a second mortgage, or a home equity line of credit, borrowers must have adequate income to qualify for the loan, and they 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.

6. Will we have an estate that we can leave to heirs?
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.

7. How much money can I get from my home?
The amount you may borrower will depend on:
o Age of the youngest borrower
o Current interest rate
o Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
o Initial Mortgage Insurance Premium--your choices are HECM Standard or HECM SAVER
You can borrow more with the HECM Standard option. In addition, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow. If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow. For an estimate of HECM cash benefits fill out the short form below and you will receive a comparison of reverse mortgage loan types by one of our experienced specialists. Many online reverse mortgage calculators can provide you with an estimate of the amount of funds you can borrow.

8. How do I receive my payments?
You can select from five payment plans:
o Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
o Term- equal monthly payments for a fixed period of months selected.
o Line of Credit- unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
o Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home.
o Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

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