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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.

 
 
 
 

Interested in learning more? Schedule a no-obligation consultation: 

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

Frequently Asked Questions

Q: What is a HECM Reverse Mortgage loan?


A: A HECM reverse morgage is a way to turn a portion of the equity in your home into cash. A reverse mortgage could protect your home from unexpected expenses such as a nursing home 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 you sell, permanently move out of your home, or until the last person on the title passes away. * This does not constitute as financial advice. Please consult a financial advisor for your specific situation.




Q: What is the difference between a Reverse Mortagage loan and a Home Equity Loan?


A: A HECM reverse morgage is a way to turn a portion of the equity in your home into cash. A reverse mortgage could protect your home from unexpected expenses such as a nursing home 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 you sell, permanently move out of your home, or until the last person on the title passes away. * This does not constitute as financial advice. Please consult a financial advisor for your specific situation.




Q: Do I qualify for a HECM Reverse Mortgage loan?


To qualify for a reverse mortgage all borrowers must be at least 62 years of age.




Q: Can I apply for a HECM if my current house wasn't purchase with an FHA loan?


A: Yes. Regardless if you have a home loan or own free and clear you can still apply.




Q: How does a Reverse Mortgage affect your heirs?


A: Your heirs can inherit a home that has a reverse morgage on it, just like they woudl a tranditional mortgage. They will be given up to six months with two 90-day options to extend in order to decide if they will sell it, sign it over as a deed in-lieu of foreclosure, or satisfy the outstanding balance. An appraisal can be ordered to help in making the decision to see if there is equity after the loan is paid off and costs of sale. Alternatively, your heirs can purchase the home for 95% of the appraised value or the morgage balance, whichever is lower. (NOTE: This does not constitute legal advice. You should consult an attorney for your specific situation.)




Q: Why should I work with someone on Joan's team as my Mortgage Planner?


A: Joan Qvigstad's team strongly believes the way Fairway Mortgage does things is just as important as what they do. Every team member is guided by the Fairway Core Values, which define how Joan and her team works to interact with others, and guides her in determining how to best serve their customers.




Q: When you purchase a home with a Reverse Mortgage loan will the loan be held on you existing home or your newly purchased home?


A: The reverse mortgage loan will be held on the newly purchased home as your primary residence. The down payment you will need to bring to closing is usually between 50-70%.




Q: Why is my down payment higher with a Reverse Mortgage loan?


A: Your down payment is higher initially because you will never be required to make a monthly payment (except for taxes, insurance and maintain the home). With a traditional mortgage you will lose much more in cash flow over the years because of the consistent required payments.