FHA Guarantee Reverse mortgage

Television advertisements make reverse mortgages sound appealing. Some ads make misleading statements such as a borrower “will never lose your home, ” or that a reverse mortgage is a “government benefit, ” but there are several untoward things that can happen if borrowers do not fully understand the terms.

Furthermore, because the Federal Housing Administration (FHA) insures reverse mortgages, future taxpayers could be on the hook for billions of dollars.

How A Reverse Mortgage Works. Reverse mortgages allow homeowners age 62 or older to borrow against their home equity and receive the money in the form of a steady stream of income (annuity), a lump sum payment or a line of credit they can draw on. Reverse mortgages differ from home equity loans in that repayment of the loan is not due until the loan recipients die or move out of the home. As long as the borrowers continue to live in the home, they can receive payments until death. Once the borrowers die, however, the loan must be paid back either through the sale of the home or with other funds from the borrower’s estate. If the loan amount exceeds the value of the home when the loan comes due, the house becomes the property of the lender. If proceeds from the sale of the home are insufficient to pay the outstanding loan balance, lenders can file an insurance claim with the FHA.

How Much Money Can a Reverse Mortgage Provide? The amount that a borrower can obtain through a reverse mortgage is based on two main criteria: the amount of equity in the borrower’s home and the borrowers’ age. Thus:

  • A single individual must be at least 62 years old in order to apply for a reverse mortgage; for a married couple, both spouses must be 62 years of age.
  • The older the borrower, the more home equity he can access. For instance, a 62-year old borrower may only receive about 40 percent of his home’s equity, whereas a 72-year old borrower could access about 60 percent of home equity.

The loan is not without cost. Like a conventional mortgage, reverse mortgages accrue interest, but the interest is not due until an event occurs that triggers repayment. Lenders also charge up-front fees, which include:

  • Mortgage insurance, which is charged as both an up-front fee ranging from 0.02 percent to 2 percent (depending on the specific loan terms) and an annual charge equal to 1.25 percent of the loan balance.
  • An origination fee based on the loan amount, but not more than $6, 000.
  • Miscellaneous service fees.

Lenders subtract these fees from the lump-sum or monthly payments the borrower receives.

Types of Loans Available. Mortgage companies have offered different types of loans, similar to conventional mortgages, including a fixed-rate (known as the Standard Fixed Rate HECM), a lower-cost, fixed-rate mortgage (the “Saver” plan) and a variable-rate mortgage. However, this year the FHA eliminated Standard Fixed Rate HECMs, which have higher upfront fees and more generous loan amounts.1 Instead, the FHA now only allows “Saver” plans for fixed-rate mortgages, which charge lower fees but offer 10 percent to 20 percent less payout than standard mortgages.

Reverse mortgages can generally be used to pay off an existing conventional mortgage if the balance owed does not exceed the amount of the reverse mortgage.


Fewer FHA Loans Going Bad - Encouraging news

2011-03-24 10:55:36 by EricAZ

The serious delinquency rate of mortgages insured by the Federal Housing Administration went down from 8.9 percent a year ago to 8.29 percent the first quarter of this year.
Some mortgage experts have worried about more FHA home loans becoming delinquent after FHA loan originations exploded in recent years, in a way replacing the subprime loans offered during the run up in housing prices. However, the latest delinquency figures indicate the FHA is through its worst period and problem is under control.
As subprime loans disappeared and lenders tightened their mortgage requirements following the financial crisis, FHA loans, which are insured by the agency but made through private FHA-approved lenders, have become the only option for many borrowers with imperfect credit,...

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  • Avatar Philip Is there a reverse mortgage available for people less than 62 years old?
    Jun 29, 2006 by Philip | Posted in Renting & Real Estate

    I am a US homeowner. Instead of refinancing, I wanted to explore the possibility of a reverse mortgage.All I have seen so far is that this is only good for homeowners aged 62 or more. Is there a company that provides reverse mortgages for those younger than 62?

    • Have a look here.