Reverse Mortgages - How They Work
Designed for seniors over the age of 62, a reverse mortgage or HECM is a loan that allows the homeowner to convert equity in their principal residence into cash, a line of credit or monthly income, while retaining ownership.
Before HECMs became available, retired homeowners who needed cash had few options.
They could sell and perhaps buy something smaller, move in with family members or move into a rental property.
The other option would be to borrow against the equity in their home, but they would then face monthly loan payments.
The reverse mortgage does not have to be paid back until the last surviving borrower dies, sells the home, or moves out.
The total amount owed at the end of the loan equals all of the cash advances received, plus the accrued interest.
The Federal Housing Authority determines how much HECM lenders can offer based on the age of the homeowner, the home's value and current interest rates.
There are different varieties of HECMs.
A Fixed Rate product offers long-term security, consistency, and dependability.
With a fixed rate reverse, the interest will never change.
Since interest rates and margins fluctuate frequently, the total amount of income received from a HECM changes with an Adjustable Rate Reverse Mortgage.
Under this option, rates may improve over the years.
In many cases, HECMs can also work in a purchase transaction.
A senior may purchase a home without making a single monthly mortgage payment.
This option allows seniors to downsize if the need arises.
Although HUD and the FHA recently passed the HECM Reverse Mortgage home purchase program, allowing the purchase a new home with reverse mortgages proceeds, borrowers in Texas are not yet eligible.
There are a few requirements particular to HECM under the purchase program.
Prospective customers are required take a HUD counseling class to ensure that they fully understand the program.
For instance, these loan borrowers may not take out a bridge loan including financing, personal loans, credit card cash withdrawals and any other loose end loans.
Borrowers assets must be verified by their lender by means of a verification deposit and verification of savings and checking account statements.
HECMs work in a similar way to traditional mortgages, only in reverse! Rather than making a payment to the lender each month, the lender pays the borrower.
All homeowners on the title must be at least 62 years old and occupy the home as their principal residence.
There are no income requirements to qualify for a reverse mortgage-in fact, many seniors use them in lieu of an income.
Individual eligibility and costs for HECMs vary based on state requirements and property values.
These reverse mortgages are available in all 50 states as well as the District of Columbia, and Puerto Rico.
Mobile homes are generally not eligible, though some manufactured homes are.
Homes should be single-family residences.
Property conditions must meet HUD standards before they are eligible for the loan or part of the loan must be used to bring the house up to those standards.
Robert Griffin specializes in reverse mortgages and has earned the accolade of No.
1 reverse mortgage broker in the Southwest for three years in a row.
The owner of Griffin Financial Mortgage LLC, based in Fort Worth, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB).
Before HECMs became available, retired homeowners who needed cash had few options.
They could sell and perhaps buy something smaller, move in with family members or move into a rental property.
The other option would be to borrow against the equity in their home, but they would then face monthly loan payments.
The reverse mortgage does not have to be paid back until the last surviving borrower dies, sells the home, or moves out.
The total amount owed at the end of the loan equals all of the cash advances received, plus the accrued interest.
The Federal Housing Authority determines how much HECM lenders can offer based on the age of the homeowner, the home's value and current interest rates.
There are different varieties of HECMs.
A Fixed Rate product offers long-term security, consistency, and dependability.
With a fixed rate reverse, the interest will never change.
Since interest rates and margins fluctuate frequently, the total amount of income received from a HECM changes with an Adjustable Rate Reverse Mortgage.
Under this option, rates may improve over the years.
In many cases, HECMs can also work in a purchase transaction.
A senior may purchase a home without making a single monthly mortgage payment.
This option allows seniors to downsize if the need arises.
Although HUD and the FHA recently passed the HECM Reverse Mortgage home purchase program, allowing the purchase a new home with reverse mortgages proceeds, borrowers in Texas are not yet eligible.
There are a few requirements particular to HECM under the purchase program.
Prospective customers are required take a HUD counseling class to ensure that they fully understand the program.
For instance, these loan borrowers may not take out a bridge loan including financing, personal loans, credit card cash withdrawals and any other loose end loans.
Borrowers assets must be verified by their lender by means of a verification deposit and verification of savings and checking account statements.
HECMs work in a similar way to traditional mortgages, only in reverse! Rather than making a payment to the lender each month, the lender pays the borrower.
All homeowners on the title must be at least 62 years old and occupy the home as their principal residence.
There are no income requirements to qualify for a reverse mortgage-in fact, many seniors use them in lieu of an income.
Individual eligibility and costs for HECMs vary based on state requirements and property values.
These reverse mortgages are available in all 50 states as well as the District of Columbia, and Puerto Rico.
Mobile homes are generally not eligible, though some manufactured homes are.
Homes should be single-family residences.
Property conditions must meet HUD standards before they are eligible for the loan or part of the loan must be used to bring the house up to those standards.
Robert Griffin specializes in reverse mortgages and has earned the accolade of No.
1 reverse mortgage broker in the Southwest for three years in a row.
The owner of Griffin Financial Mortgage LLC, based in Fort Worth, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB).
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