Many senior Americans find themselves in the awkward position of having lots of equity in their home, unable to qualify for a refinance loan, and wishing they had a way to get some cash out of their house.
Several years ago, the concept of a reverse mortgage was introduced, but they were very expensive and hard to understand. Today, FHA has created program that meets many senior needs at a reasonable price point. FOX 5 real estate expert John Adams joined Good Day with some details.
For more information, visit John's website at Money99.com
Q: What is the reverse mortgage program about?
The FHA's "Reverse Mortgage" program allows senior homeowners to withdraw some of the equity in home. For seniors with substantial equity, it can be a lifesaver. It has high start-up costs, but if you are in good health and can use the funds, it can be a great way of tapping into your equity and staying in your home.
It's actually called the HOME EQUITY CONVERSION PROGRAM, and it's a safe plan that can give older Americans greater financial security.
Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and pay for any other expenses.
I have put a free booklet, "Use Your Home to Stay at Home," on my website at MONEY99.com.
Q: So, what exactly is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.
Here's the key: Unlike a traditional mortgage, REVERSE MORTGAGE borrowers do not have to repay the loan until they no longer use the home as their principal residence. As long as you remain in your home, you never need to make any payments on the money you borrow.
Q: Can I qualify for FHA's HECM reverse mortgage?
To be eligible, you must be a homeowner 62-years or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home.
Q: What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
5. Why is this different from a HOME EQUITY LOAN?
With a home equity line of credit, borrowers must have adequate income and credit to qualify for the loan, and they make monthly payments on the principal and interest.
A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. You are still required to pay real estate taxes, utilities, and insurance premiums.
Q: What happens if we move or sell the house?
When the home is sold or no longer used as your residence, the cash, interest, and other finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or your estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.
Q: How much money can I get from my home?
The amount you may borrower will depend on:
- Your age
- The value of your home
- The current interest rate
- How much, if anything, you currently OWE on your house
- How you choose to take payment
Q: How do I receive my payments?
You can select from :
- A stream of monthly payments.
- A Line of Credit - you get a checkbook and a line of credit.
- A LUMP SUM of cash
or a combination of any of the three options.
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