How a HUD reverse mortgage works
If you are 62 or older, own your home and would like to supplement your retirement income, a reverse mortgage may be a good option. Home equity conversion mortgages (HECM) is a type of Federal Housing Administration (FHA) reverse mortgage program, which allows seniors who own their homes to convert a portion of the equity to cash or a line of credit.
HUD reverse mortgages allows seniors to exchange equity for cash
Reverse mortgages let borrowers receive cash payments based on several factors such as the age of the youngest borrower or eligible non-borrowing spouse, current interest rate and the lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price including the amount of equity in the home. Unlike conventional a mortgage that provides lump sum payment at closing that requires monthly repayments by a borrower to a lender; a HECM loan provides disbursement payments to the borrower in accordance their choice without requiring monthly repayment. The disbursement payments are also not considered income. An appraisal is also required to determine the current fair market value of the residence. Both fixed and adjustable interest rate loans are available for HECM loans based on the type of disbursements chosen.
A reverse mortgage loan is repaid after the borrower permanently moves out of the home, stops using the property as the principal residence, sells the home or the last surviving borrower dies. The loan also becomes due if you stop paying your property charges, such as taxes, homeowners’ insurance, or fail to maintain the property in good repair.
The borrowers may choose to pay the loan for other reasons other than death by satisfying the outstanding HECM, selling the property for at least 95 percent of the appraised value or turn over the property to the lender with a Deed in Lieu of Foreclosure. Under some circumstances, the borrowers may correct the matter which resulted in the mortgage becoming due and payable. However, if the loan exceeds the sale of the property at the current appraised fair market value by the borrower and the borrower sells the property per the HUD guidelines, the FHA insurance pays the difference. If the property has increased in value in excess of the outstanding mortgage, any gains by the sale of the property may be kept by the borrower after repayment of the loan.
How to qualify for a HUD reverse mortgage
There are several borrower and property requirements to qualify for a reverse mortgage. You must be at least 62 years old. The majority of the existing mortgage must be paid. If a small amount remains, a portion of the disbursement can be used to retire the mortgage. You must undergo counseling with an HUD-approved HECM counselor before applying for a HECM loan to make sure that you understand the terms, obligations and possible alternatives.
Although no specific income level is required for an HECM, you must demonstrate that you have adequate financial resources to continue to pay property charges such as real estate taxes, insurance, utilities, maintenance and other expenses associated with upkeep of the home. The home must be your principal residence. Up to a four-unit homes can qualify if you live in one of the units. Condominiums approved by HUD and manufactured homes that meet FHA requirements may also qualify. Vacation homes, investment homes and second homes do not qualify. In addition, there should also be no delinquency of any federal debt.
Payment options for a reverse mortgage
You can choose the type of disbursement you prefer. There are several types of monthly payments, a line of credit available on an as-needed basis, lump-sum disbursement and combinations of monthly payments and line of credit. Interest accrues only on the amount borrowed.
Contact Quontic Bank to learn more about how a HUD reverse mortgage works
For more information about how a HUD reverse mortgage works for senior homeowners, please contact Quontic Bank at 1-800-388-7689 today.
Quontic Bank is a Member FDIC bank, regulated by the U.S. Office of the Comptroller of the Currency. We are authorized by the U.S. Department of Housing and Urban Development (HUD) to make Federal Housing Authority (FHA)-insured mortgage loans in all fifty states. We have an A+ rating from the Better Business Bureau and were named to the Top 200 Healthiest Banks In America in 2016, ranking No. 88 of the 6,199 federally insured banks in the U.S., according to DepositAccounts.com. We were also ranked the 12th largest reverse mortgage lender in the U.S. by "Reverse Mortgage Daily” in September 2017. Quontic Bank is a member of the National Reverse Mortgage Lenders Association (NRMLA) and holds NMLS ID 403503.