How Does a Reverse Mortgage Work?

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There are many factors to consider before deciding whether a reverse mortgage loan is right for you. Our guide below will describe just how a reverse mortgage loan works and will outline the steps needed to access your home’s equity.

To assist in the process of determining your eligibility and whether a reverse mortgage loan is the right choice, you must meet with a HECM counselor to discuss program eligibility requirements, financial implications and alternatives to obtaining a reverse mortgage loan and repaying the loan.

Counselors will also discuss provisions for the mortgage becoming due and payable. Upon the completion of reverse mortgage counseling, you should be able to make an independent, informed decision of whether this product will meet your specific needs.

There are borrower and property eligibility requirements that must be met to qualify for a reverse mortgage loan. You can refer to the list below or simply use our reverse mortgage calculator to help you determine if you qualify.

If you meet the eligibility criteria, you can complete a reverse mortgage application by contacting an FHA-approved lender. You can search online for a FHA-approved lender or you can ask the HECM counselor to provide you with a listing. The lender will discuss the HECM program requirements, the loan approval process, and repayment terms.

Borrower Requirements

You must:
Be 62 years of age or older
Own the property outright or have considerable equity in the home
Occupy the property as your principal residence
Receive counseling from a HUD- approved reverse mortgage counselor

Property Requirements

The following eligible property types must also meet all FHA property standards and flood requirements:
Single family home or 2-4 unit home with one unit occupied by the borrower
HUD-approved condominium project
Manufactured home that meets FHA requirements

HECM Features and Benefits

The amount of money you can receive is based on the age of the youngest borrower, prevailing interest rates and the lesser of the appraised value of the home, sale price or maximum lending limit. No monthly mortgage payments are required.

However, the borrower must continue to pay taxes and insurance and maintain the home according to FHA guidelines. Interest and fees are added to the principal balance each month, resulting in a rising loan balance over time.

Borrowers may remain in the home indefinitely, even if the loan balance becomes greater than the value of the home – so long as the borrower meets the loan obligations.

Because HECM’s are non-recourse loans, you or your heirs will never owe more than the lesser of the value of the home or the loan balance, provided the home is sold to repay the loan.

Borrowers pay a mortgage insurance premium (MIP) which protects the borrower by ensuring they continue to receive their payments in the event the lender becomes insolvent.

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