Hud Reverse Mortgage
Has anyone had personal experience with
getting and using a reverse mortgage? I'd like to make some questions.
This is not for me but for my sister's 90 year old mother-in-law who
is afraid of getting a reverse mortgage, but needs the money.
How HUD's Reverse Mortgage Program Works
Reverse mortgages are a special type of home loan that lets a homeowner
convert the equity in his/her home into cash.
Homeowners 62 and older who have paid off their mortgages or have only small
mortgage balances remaining are eligible to participate in HUD's reverse
mortgage program. The program allows homeowners to borrow against the equity
in their homes.
Unlike ordinary home equity loans, a HUD reverse mortgage does not require
repayment as long as the borrower lives in the home. Lenders recover their
principal, plus interest, when the home is sold. The remaining value of the
home goes to the homeowner or to his or her survivors. If the sales proceeds
are insufficient to pay the amount owed, HUD will pay the lender the amount
of the shortfall. The Federal Housing Administration, which is part of HUD,
collects an insurance premium from all borrowers to provide this coverage.
The size of reverse mortgage loans is determined by the borrower's age, the
interest rate, and the home's value. The older a borrower, the larger the
percentage of the home's value that can be borrowed.
There are no asset or income limitations on borrowers receiving HUD's
reverse mortgages. There are also no limits on the value of homes qualifying
for a HUD reverse mortgage. However, the amount that may be borrowed is
capped by the maximum FHA mortgage limit for the area, which varies from
$81,548 to $160,950, depending on local housing costs. As a result, owners
of higher-priced homes can't borrow any more than owners of homes valued at
the FHA limit.
HUD's reverse mortgage program collects funds from insurance premiums
charged to borrowers. Senior citizens are charged 2 percent of the home's
value as an up-front payment plus one-half percent on the loan balance each
year. These amounts are usually paid by the lender and charged to the
borrower's principal balance. FHA's reverse mortgage insurance makes HUD's
program less expensive to borrowers than the smaller reverse mortgage
programs run by private lenders without FHA insurance.