Reverse mortgages are available to homeowners who are at least 62 years old. The most commonly used reverse mortgage program is insured by the Department of Housing and Urban Development (HUD) and is titled the "Home Equity Conversion Mortgage" (HECM). This loan product may allow you to use the equity in your home, supplement your income with a steady stream of funds, eliminate your monthly mortgage payment, and/or establish a line of credit that will allow you to draw funds from as needed.
The standard qualifications for this program are as follows:
• Eligibility - To qualify for this program, the homeowner must be at least 62 years old and the property must be used as the borrower(s) primary residence. The homeowner is also required to complete the HECM counseling program.
• Credit Requirements - Credit approval is subject to verification that the homeowner does not have any delinquencies on federal debt.
• Equity Requirements - The equity requirements are based on the homeowner(s) age, but typically the homeowner must have at least 40% equity in their home.
• Property Type - Single dwellings and two to four family owner occupied dwellings are eligible.
• HUD Approved Condos - Only HUD approved condos and manufactured homes that meet FHA requirements are eligible under this program.
• Retained Ownership - Under the HECM program, the homeowner retains ownership and title to the property.
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• Income and Employment Requirements - There are no income or employment verification requirements; although income has to be verified to prove the homeowner has adequate funds to pay the annual property taxes and homeowners insurance.
• Condition of Dwelling - Homeowners must keep the house in good condition to retain its market value.
The reverse mortgage program eliminates mortgage payments for as long as the house is owner-occupied, but it does not eliminate the requirements of paying property taxes and insurance on the home. This program also requires that the home be well-maintained.
The reverse mortgage program has many benefits. One of the greatest advantages for a home owner is that they are allowed to stay in their home with their name on the title for as long as the home is owner occupied. Also, this program allows the homeowner to receive monthly installment payments or for the homeowner to establish a line of credit. The proceeds they receive from the HECM are income tax free. This program does not hold the heirs of the property personally liable for the loan when the homeowner passes away. If there is any equity remaining in the property after the homeowner passes away, the beneficiary(s) have the right to pay off the reverse mortgage and keep or sell the house. There are no monthly mortgage payments for as long as the homeowner lives in the property.
There are some drawbacks to this reverse mortgage program, these include: the equity in the home can be completely used up depending on how long the homeowner lives in the property, and if the homeowner applies for need-based programs such as Medicare or supplemental Social Security, the potential benefits could be directly affected by the reverse mortgage program. There are fees associated with this program, please consult a HUD approved reverse mortgage lender for details. This program does have a maturity clause, which could be triggered by the borrower passing away, if the principle borrower no longer lives in the property for a 12 month period, or if the homeowner becomes delinquent on the property taxes, homeowners insurance, or fails to adequately maintain the property.
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