What is a HUD Reverse Mortgage?
What is a HUD Reverse Mortgage? – Of all the loans that are available for senior citizens, the HUD reverse mortgage is the most popular choice. One of the first of their type, the HUD mortgage, called the Home Equity Conversion Mortgage (HECM) is one in which people have shown to have great confidence.
The Federal Housing Administration, better known as the FHA, is the division of HUD from which the reverse mortgage emerged. Designed to equip older Americans with more financial security, the mortgage allows this generation to transfer some of the equity in their home into cash in their pockets. The specifics of the reverse mortgage are quite simple. Equity that has accumulated in a home after many years of making traditional home mortgage payments can be withdrawn in a variety of different methods depending on the homeowner’s specific needs.
Qualifications for the mortgage will be found to be quite open. Homeowners must be at least 62 years of age, must either own their home outright or have a minimal balance remaining that can be easily paid off using the reverse mortgage proceeds and the home must be the primary residence of the homeowner. A counseling session is mandatory in which the homeowner will be informed of the particulars of the loan and how it will affect them and the house.
The HUD reverse mortgage differs from a traditional home mortgage in that it pays out to the homeowner, instead of a homeowner paying into the mortgage. Amounts that will become available to the homeowner vary; dependent on age, the home’s appraised value and the interest rate that prevails at that time. The highest yields are to an older person with a high value home and a low interest rate.
Paying back the mortgage is not an issue for the lifetime of the homeowner as long as they remain living in the house. Of course, taxes and insurance must be kept current by the homeowner as well. When the home is eventually sold, the estate of the homeowner will pay back all monies withdrawn, interest and any fees to the lender. If there are funds remaining, it is disbursed to the homeowner or their heirs.
A great benefit offered by HUD reverse mortgage lenders is that information regarding the loan is provided free. Counseling is also either free or at a very low cost to enable homeowners to learn more about the mortgages to determine if it will be right for them.
Governmental Agencies Overseeing Reverse Mortgages
There are several types of reverse mortgages. Most of these types are lent through private lending companies. However, some of these loans are insured by FHA. It is a good idea for you to get a loan from a lender that is certified to do a HUD reverse mortgage.
There are two main advantages to this. First, you get better terms because the lender doesn’t risk as much in case of a loss because losses are covered by the insurance. Second, in order for a company to be certified, it must be audited and it must comply with very strict regulations set by the Federal Government.
In some cases, private lenders that are not certified with FHA charge exorbitant fees to senior citizens and take advantage of the fact that reverse mortgages are different than a regular mortgage and many people are unaware of it.
The federal agency in charge of overseeing seniors reverse mortgage is the Federal Housing Administration. This agency is part of the US Department of Housing and Urban Development and its main goal is to protect the normal homeowner when getting a mortgage.
FHA doesn’t lend you the money. It oversees the different banks and lender that do lend you the money. They set strict regulations that banks need to adhere to in order to be FHA certified.
Among the guides that FHA has set is the fact that any homeowner wanting to apply for a seniors reverse home loan is entitled to receive free counseling. During this session, the homeowner can ask any questions related to a reverse mortgage and the different consequences of getting this type of loan.
FHA also set a limit on the amount of money that can be lent through a reverse mortgage. This amount varies slightly depending on the area of the country where you live.
Hud reverse mortgages account for about 90% of all the present reverse mortgages. It is a very popular mortgage because all the parties in the transaction win. It is really a true win-win situation.
The homeowner wins because FHA (the Federal Housing Administration,) a department of HUD (U.S. Department of Housing and Urban Development,) oversees how this type of reverse mortgages work. It guarantees that you don’t get exorbitant fees when getting a HUD reverse mortgage. Also, it audits the reverse mortgage lenders to ensure that they treat customers in a fair way.
It also benefits the reverse mortgage lender because it limits potential loses. This in turn benefits you because it allows the reverse mortgage bank to offer better terms.
How Does a HUD Reverse Mortgage Work
A HUD reverse mortgage is a home loan for seniors based on the equity on their homes. The owner needs to have enough equity in the home in order to apply for such a loan.
It allows homeowners the chance to enjoy the benefits of retirement with tax free income that doesn’t need to be paid back for as loans as they live in the house. The proceeds from the sale of the home then is distributed between the lender and the owner or the owner’s heirs.
The most common (and probably best) type of seniors revere mortgage is the one backed by the US Department of Housing and Urban Development (HUD.) In order to get a HUD backed reverse home mortgage, the lender must be approved to do so by meeting some very tough requirements.
In a HUD reverse mortgage, the Government ensures that they will pay the remainder of the balance due to the lender in case that the house is eventually sold for a lower amount that is wed to the lender. It also ensures that if you outlive the actual tables, the HUD insurance will continue to make your monthly payments for as long as you live.
By having a HUD insured reverse mortgage, a lender is able to offer you better terms knowing that their responsibility is limited by the amount they could sell your house for in the open market.
The Federal Housing Administration is the one giving the ability to back the reserve home loans. It helps lender provide you with lower cost reverse mortgages than the other private loan products. In order to be FHA insured, the lender must be approved and that limits on the amount to be borrowed must be approved by the FHA. These limits are based on the value of the house, your age and the area in which you live.
The FHA reverse mortgage insurance is a pool paid by all consumers who have a reverse mortgage. Every time someone gets a FHA reverse mortgage, 2% of the value of the mortgage is paid to the pool in addition to an added half a point paid yearly.
However, as a borrower, none of these costs come out of your pocket. All costs are included in the loan balance. The only cost that you may have is the cost of an appraisal.
These added costs can make the loan expensive. If you want to stay in the house for a under 5 years, you may want to choose a better solution. Talk to your reverse mortgage lender or counselor for advice on whether the reverse mortgage is good for you.
The HUD Reverse Mortgage Steps
As baby boomers continue to reach retirement age, they are looking for different ways to supplement their incomes. For many people, social security and pension payments are not enough. Some of these people are turning to seniors reverse mortgage as an efficient solution to this dilemma.
The process of applying for a reverse home loan is not necessarily hard. Once you know what is it that you need to qualify, the paperwork is fairly easy. In addition, an experienced broker can guide you through the whole process.
If you are getting a FHA insured loan, you will be entitles to several benefits and will have to comply with a few qualifications. This is usually good because it guarantees you that you are getting a good deal in you reverse home loan.
These are the basic steps when applying for a reverse mortgage:
1. Familiarize yourself with this type of loan. Read as much as you can about this type of loan. You can find many different educative articles in this site and several other ones. You may want to learn about how they work and when they are a good solution for you.
2. Find a lender who can guide you through the lending process. We recommend to hire a lender who is FHA certified. Make sure the lender has plenty of experience in reverse mortgages.
3 . Get the required counseling. Federal regulations mandate that you get a free credit counseling through an approved association such as AARP. In this session, you can have all of your questions answered. If you have questions about how to set this session, you can ask your broker.
4. Put the required documentation together. This process is usually shorter than in a traditional loan. This is so because you won’t have to provide income verification and you credit score is of no concern.
Even though getting a reverse mortgage is an important financial moment, you need to remember than thousands of people do it every day. Just make sure you get a broker you trust and who can guide you and educate you through the whole process.
Using a HUD Reverse Mortgage Counselor
One of the major requirements when applying for a FHA insured reverse mortgage is to receive counseling before applying for such a home loan. The counselor is used for your protection.
Counseling is one of the safeguards put in place by the Department of Housing and Urban Department to ensure that senior borrower understand the repercussions of getting a reverse home mortgage. It guarantees that you know how a reverse mortgage works before applying for one.
Reverse mortgage counseling is basically a third party educational counseling sessions that can be done on person or over the phone. It doesn’t cost the borrower any money as it’s a free service that must be provided to you.
The reverse mortgage lender can provide with a list of HUD counselors in your area or with a list of telephone numbers you can use. The only objective of a reverse mortgage counselor is to help you understand the complete process.
The typical session with the counselor will last anywhere between 25 minutes and a couple of hours. It depends on the questions you may have. To ensure that your session is as productive as possible, make sure that you have all the necessary documentation with you. You’ll probably need to provide copies of your mortgage and note. Having the documentation will help to speed the time taken to be approved for the reverse mortgage.
Of course, it goes without saying that your reverse mortgage broker will be able to answer any additional questions you may have and will guide you through the whole process to ensure that you have a stress-free experience.
Getting a reverse mortgage is an important decision. That’s why we encourage you to use this Online HECM calculator to see how much money you could earn in reverse mortgage repayments and what happens to your home equity over the life of the reverse mortgage.