Homeowners who are aged 62 or older who have a large equity position in their primary residences and those already having paid off their mortgages can be eligible to participate in HUD’s reverse mortgage program. The program allows homeowners to borrow against the equity in their homes subject to certain program limits. The payment plans available to the property owners include the following:
Tenure Payment Plan – equal monthly payments for as long as at least one borrower is alive and continues to occupy the property as their principal.
Term Payment Plan – equal monthly payments for a fixed period of months.
Line of Credit Plan – Payments and/or installments, at variable times and in the amounts requested by the borrower until the line of credit has been used in it’s entirety.
Modified Tenure – Combination of line of credit plan with monthly payment plan for as long as the homeowner/borrower continues to occupy the property as their primary residence.
Modified Term – Combination of line of credit plan with term payment plan for a fixed period of months selected by the homeowner/borrower.
The difference between a HECM and an ordinary home equity loan is that a HUD reverse mortgage does not require repayment as long as the home is the homeowner/borrower’s principal residence. Lenders ultimately recover the principal of the loan and interest when the home is sold. Any positive balance after paying off the loan would go to the estate of the homeowner/borrower. If a negative balance exists to repay the loan to the lending institution, HUD will pay the lender the shortfall owed. The insurance premium for this feature is collected from each borrower as part of the program. There are no income or asset limitations on borrowers receiving HUD reverse mortgages.
The United States Federal Government ensures Home Equity Conversion Mortgages. The HECM FHA insured reverse mortgage can be used by senior homeowners who are age 62 and older to convert the equity in their home into monthly income payments. The HECM can be funded by a lending institution, bank, credit union or savings and loan association. Before any homeowner can secure a HECM, they must receive consumer education and counseling by a HUD approved HECM counselor. The HECM counselor will discuss individual eligibility requirements, financial considerations and various alternatives to obtaining a HECM.
Age 62 years of age or older
Property must be owned by the homeowner/borrower
Residence must be occupied by homeowner/borrower as their primary residence
Education and counseling by a HUD approved HECM counselor.
Maximum Mortgage Amount Based on:
Age of the youngest borrower if the property is jointly owned
Current rate of interest
The FHA insurance limit or the appraised value, which ever is the lesser value
Financial Requirements of the Homeowner/Borrower
There are no income or credit qualifications
No repayment providing the home remains the primary residence of the homeowner/borrower
Any closing costs can be financed as part of the reverse mortgage
Single family home or 1 to 4 unit home with one unit occupied by the homeowner/borrower.
HUD-approved homes and leased land.
Meet all FHA property standards and flood requirements
This program is authorized by the Housing and Community Development Act of 1987, Section 417, Public law 100-242 (12 U.S.C. 1715z-20). Program regulations are in 24 CFR 206. This program is administered by the Office of Single Family Program Development in HUD's Office of Housing-Federal Housing Administration.
Source: U.S. Department of Housing and Urban Development.
U.S. Department of Housing and Urban Development
451 7th Street S.W., Washington, DC 20410
Telephone: (202) 708-1112 TTY: (202) 708-1455
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