FHA Reverse Mortgage
Reverse mortgages are becoming increasingly popular with seniors who have equity in their homes and want to supplement their income. A reverse mortgage can be obtained through FHA’s Home Equity Conversion Mortgage (HECM) program.
- Age 62 or older
- Own home outright or paid down a considerable portion of the mortgage balance
- Currently live in the home
- Current on all federal debt payments
- Have sufficient financial resources to continue making payments on all home ownership expenses, such as property taxes, insurance, and Homeowner Association fees
- Participate in an information session hosted by a HUD-approved HECM counselor
The borrower’s home must meet all FHA property standards and requirements. Eligible homes include: Single family homes; 2 to 4 unit homes with the borrower occupying one of the home units; HUD-approved condominium projects; and, manufactured homes.
The amount that can be borrowed is based on several factors, including the age of the younger borrower (or eligible non-borrowing spouse), current interest rates, and the lesser of the appraised value, the HECM mortgage limit of $625,000, or the sales price.
For fixed rate mortgages, the payment plan is the Single Disbursement Lump Sum payment plan. For adjustable rate mortgages, the borrower can selected one of the following payment plans:
- Tenure – Equal monthly payments as long as the borrower lives and continues to occupy the residence
- Term – Equal monthly payment for a fixed number of months
- Line of credit – Installment payments at times and in the amount of your choosing until the line of credit is exhausted
- Modified tenure – Combination of the line of credit and scheduled monthly payments for as long as you remain in the home
- Modified term – Combination of the line of credit and monthly payments for a fixed number of months selected by the borrower
Reverse mortgage costs
The expenses associated with obtaining reverse mortgages are similar to those of a normal mortgage. The costs can be paid in cash when the mortgage is originated, or paid out of the proceeds of the loan. The fees and charges are comprised of several components.
- Mortgage insurance premium – You will be charged an initial mortgage insurance premium of 0.5% or 2.5% depending on your repayment schedule. Additionally, you will be charged an annual premium of 1.25% of the outstanding mortgage balance.
- Third party charges –Typical closing costs, such as appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit check fees, etc.
- Origination fee – Fee charged by the lender for processing the loan. A lender can charge the greater of $2,500 or 2.0% of the first $200,000 of your home’s value, plus 1.0% of the amount over $200,000. Origination fees for FHA reverse mortgages are capped at $6,000.
- Servicing fee – Fees charged by the lender to cover the cost of servicing the loan throughout the life of the mortgage.