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FHA Reverse Mortgage

The FHA has had a reverse mortgage program in place for some time.  Their term for the concept is a home equity conversion mortgage (HECM).  With the rising popularity of reverse mortgages has come the rising number of unscrupulous lenders and brokers who try to take advantage of older people with costly loans that can result in loss of the home.

A HECM or reverse mortgage is a loan that provides the homeowner with cash based on the equity in the house.  It is not paid back until the borrower either dies or decides to sell the property and move.  Under the terms of an FHA insured reverse mortgage the borrower cannot be forced out of the home.  If after the borrower dies the amount owed on the HECM is higher than the home’s value, the FHA will make up the shortfall.

FHA insists that any reverse mortgage or HECM that the Agency provides be preceded by a counseling session with an FHA or HUD housing professional.  The FHA believes it is critical that reverse mortgage applicants understand exactly what the loan’s implications are.  You can arrange for an appointment with an approved counselor by calling (800) 569-4287 or by visiting the approved counselor web page at Hud.gov.

As with standard mortgages, FHA’s HECMs are loans provided by commercial lenders under the guidelines and auspices of the FHA.  The reverse mortgages are then insured by the FHA.  As with a standard mortgage, you are free to shop for the best deal available.  However because these loans can be expensive and complicated, take your shopping list to your HUD counselor.

Other than the obligatory counseling session, the requirements for a HECM are that you be at least 62 years old; that the home is your primary residence; and that the home is either paid off or can be paid off with partial proceeds from the reverse mortgage.

The amount that you can borrow is based on current interest rates, the lesser of the home’s appraised value or the FHA loan limits for the area; and the age of the borrower(s).  Generally speaking, the older you are and the more valuable the home, the more you can borrow.  You can get an estimate on the amount you can borrow by using the calculator at AARP.