Want to know more about reverse mortgages? Our friend Mary Spencer of Univest Bank & Trust Co. wrote this article recently. Her contact information is below if you have further questions.
The only reverse mortgage insured by the U.S. federal government is called a Home Equity Conversion Mortgage (HECM) and it is available through a Federal Housing Administration approved lender. There are only a few banks in the area that offer the FHA HECM program.
A reverse mortgage is a loan that requires no repayment as long as the homeowner continues to live in their home. If you are at least age 62, live in your home and either own it outright or have a mortgage balance, you may qualify for a reverse mortgage. Essentially, it allows you to access a portion – but not all – of the equity in your home. Unlike a home equity loan, you don’t have to repay the loan as long as you reside in the home. However, you will continue to be responsible for utilities, taxes and insurance coverage.
The loan would be repaid once the last surviving borrower passes or no longer lives in the home for 12 consecutive months or more. If heirs want to keep the home, they will need to pay off the reverse mortgage loan balance. In the event the heirs cannot afford to buy the home, they will likely have to sell it to pay off the loan. It is federally insured and if the loan balance is more than the home is worth, the FHA will accept a 95 percent payment of the home’s value.
Recently, there have been a number of major changes to the HECM program. The basics are still the same – the amount of benefit available to homeowners is based upon the youngest person’s age, value of the home, and an interest rate. The older the homeowner, the more benefit available.
In order to support the continuation of this FHA loan program, it has been necessary to make changes to the eligibility rules, fees for the loan and documentation required for approval. In essence, the borrowers have to pass a financial assessment which requires a more comprehensive review of the homeowners’ income, credit history, and tax payment history. In some cases, FHA may require payment of property taxes and insurance to be made through the program for a certain period of time. These additional steps can ensure that the borrowers will be able to meet their continuing financial obligations.
The FHA now limits the amount of money that can be withdrawn immediately as well as during the first 12 months of the loan. There are some exceptions, but in most cases borrowers are eligible to withdraw up to 60 percent of the gross amount of funds available to them.
The program is designed for homeowners who wish to remain in their homes but find it increasingly difficult to do so due to rising costs such as taxes, utilities, home and car maintenance, medical costs, etc. If you know someone that may be interested in learning more about this program, please contact Mary Spencer at 267-994-7638 or email@example.com.