What is the definition of a reverse mortgage?
Reverse mortgages are specialized home loans that turn your home equity into real cash. The difference between this type of loan and a tradition mortgage or even second mortgage is that you do not have to pay the loan back until you no longer live at the home or move to another home and the primary residence becomes the secondary residence. You can also use the money for closing costs and fees associated with purchasing another primary residence.
Who qualifies for a reverse FHA or HECM mortgage?
First you must be a homeowner and be at least 62 years of age and either have a very low mortgage balance that can be paid off with the proceeds from the reverse mortgage or have your home paid off and are currently living in the home. You also must be currently receiving information from a HECM counselor free of charge or paying a very low fee.
Can anyone apply even if they did not buy their home with an FHA loan?
Anyone can apply for HECM regardless if they purchased their home through FHA or not.
What types of homes qualify?
Homes that qualify can either be single family homes or homes with 2 to 4 units and at least one of them occupied by the individual that is applying for the loan. Other types of homes that are available are HUD homes and premanufactured homes.
What are the differences between home equity loans and reverse mortgage loans?
With the traditional home equity loans you must be employed and be able to make payments on the principal. Reverse mortgages pay you plus there is no principal to pay every month. You also have to pay property taxes on reverse mortgages as well insurance and other associated costs including insurance premiums.
Can the home be left to heirs?
The main thing to remember is that a HECM loan must be completely repaid before the home can be passed along to heirs. There is no debt of any kind that is passed along to heirs to repay. Should the borrower die it is the responsibility of the spouse to repay the HECM loan so that the house can be released to the appropriate family members. A HECM loan is cash that is borrowed according to the equity of the home which is why it must be paid back in full so that the home is free and clear.
source: 20smoney.com
