FHA Home Equity Conversion Mortgage Basics
The FHA Insured Home Equity Conversion Mortgage was instituted in 1989. FHA and Fannie Mae wanted to give older homeowners a way to receive additional income by giving them access to the equity in their homes, without the burden of making monthly mortgage payments. Remember, you must continue to pay your taxes, homeowner’s insurance, any applicable property charges, association fee’s, or ground rent; as well as maintain the home. Failure to do so will result in foreclosure! They looked to AARP for input as they designed the program to make sure the needs of seniors were addressed. The result is one of the safest and most flexible finance options available for seniors today.
The FHA Home Equity Conversion Mortgage (aka FHA reverse mortgage) is federally insured and guaranteed. It allows borrowers aged 62 or older to borrow against the equity in their home without making monthly payments. Funds from a reverse mortgage are considered loan proceeds and are not taxable. They can be used for any purpose that you wish. Many of our clients use the available funds to pay off an existing mortgage, freeing up that monthly payment for other uses. Many also use the available funds to supplement their Social Security and pension incomes for medical expenses, travel, home repairs and ever-increasing property taxes or insurance bills.
Increasingly, we see the FHA Home Equity Conversion Mortgage (aka reverse mortgage) used as a retirement planning tool providing additional monthly income or an emergency line of credit that can be accessed in times of uncertainty or financial hardship, rather than relying on credit cards. The reverse mortgage allows you to access your home’s equity without selling the home or making monthly payments; however it’s important to remember that you must continue to pay your taxes, homeowner’s insurance and any applicable association fees, property charges or ground rents and also maintain the property. Failure to do so will result in foreclosure. In most ways, the reverse mortgage is the same as a traditional, or forward, mortgage.
You will receive a statement on a regular basis showing your loan balance and how much interest was charged the previous month. The first big difference with the FHA Home Equity Conversion Mortgage is that when your statement arrives instead of writing a check to pay your interest and reduce your principal each month, your interest is added to the balance owed. When you receive your next statement, the balance is a little higher. If you or your heirs ever wish to move or sell the home, you’ll be responsible for repaying the amount borrowed, plus any interest and fees charged on the loan, out of the sale proceeds. You’ll receive any remaining equity in your home, just like when you sell a home with a traditional mortgage.
The second big difference between an FHA Home Equity Conversion Mortgage (reverse mortgage) and a traditional forward mortgage is that a reverse mortgage is non-recourse. Should the amount owed exceed the value of the property at the time you, or your heirs, decide to sell, neither you, nor your heirs, will have any personal liability for the shortfall. Remember, when you are getting a reverse mortgage that you never give up title or ownership in your home any more than you would with a traditional mortgage. Now that you know the basics, use the reverse mortgage calculator to see how much you are eligible to borrow, or give us a call toll-free at 1-888-340-0305.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.