HUD Reverse Mortgage – Using Your Home Equity For Retirement
Homeowners of a certain age who own their homes free of mortgage or with a very low outstanding mortgage balance may be eligible to supplement their income with a reverse mortgage sponsored by The Department of Housing and Urban Development. The HUD reverse mortgage, also known as a home equity conversion mortgage (HECM), allows homeowners to receive the equity built up over the years as monthly payments as needed in emergencies. This is the government agency’s version of mortgage type that has become popular in recent years. If you are seeking a HECM must meet certain minimum qualifications in order to receive the mortgage.
Qualifying for a HUD Reverse Mortgage
Qualifying for an HUD sponsored HECM requires that the property be owned free and clear of mortgages and other liens. Those homeowners with a low mortgage balance that can be paid off with the proceeds of the reverse mortgage may also qualify. The mortgaged property has to be the residence of the owner, which will usually be a one family home. However, apartment houses up to four units may qualify if the owner resides in one of the units. Some condominium units may also qualify based on lending guidelines. To be considered for a HECM the applicant/homeowner must be at least sixty-two years of age. All applicants have to go through consumer counseling, which is at their expense, prior to applying for program. If these guidelines are met the application process is underway.
The HUD Reverse Mortgage Application
Applying for the HECM program begins with finding an approved mortgage lender in the area where the property is located. These mortgages are written by an approved mortgage lender and then guaranteed by HUD. A list of qualified lenders by state is available on the HUD website or at a local HUD office. The application process requires the same information as a regular mortgage application. An appraisal of the property will be completed. The valuation of the property, income of the applicant and current interest rates are all considerations during the application process. The mortgage is written and approved by a lender in the same way a standard mortgage would be. The difference is in the distribution of the money.
The HUD Reverse Mortgage Payments
Receiving a traditional mortgage means the lender gives a lump sum to the applicant and then this is paid back over time to the lender, with interest, until paid in full. A reverse mortgage works in the opposite way. The lender gives the borrower a monthly amount to supplement other means of income. This can be done for as long as at least one of the borrowers lives in the home (tenure) or for a term of years (term) depending on the age of the person and equity in the property. There are also modifications of each type that allow for monthly payments and a line of credit to cover emergency situations. The homeowner, instead of receiving one large payment that he or she pays back, receives monthly payments from the bank. The lending bank is then paid back at the time the property is sold. This may happen at upon the death of the last borrower or any other incident requiring the borrower to move from the house. If the borrowers do not reside at the property for twelve months continually, the mortgage will become immediately due, forcing a sale of the property. Failure to maintain the property in a habitable state, failure to maintain insurance or willful damage or destruction will also cause a termination of the mortgage and immediate repayment of amounts received. The amounts due will be what has been actually paid to the borrower/owner plus interest at the agreed upon rate.
The HUD reverse mortgage program allows people with equity in a residence to remain in the residence in their retirement years and use this equity to maintain a standard of living. It is not an equity loan and repayment is in full at the time of the sale of the property. This program is worth a look when seeking alternatives to having to sell a home. Read Reverse Mortgage Pros and Cons to decide if this program is right for you and your family.
