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What is a Reverse Mortgage?
A reverse mortgage, commonly referred to as Home Equity Conversion Mortgage (HECM), is a financial product exclusive to homeowners who are 62-years old or older. Simply put, a reverse mortgage is a loan. Eligible borrowers who have accumulated home equity may borrow funds against the value of their property and obtain funding as a fixed monthly payment, a lump sum, or even credit. Interestingly, a reverse mortgage doesn’t obligate a debtor to put in any loan payment. Instead, the aggregate loan balance becomes payable when the debtor sells the home, moves away for good, or dies.
Federal regulations dictate that lending firms should ensure that the loan amount does not go beyond the debtor’s home value and that the debtor’s estate will not, in any part, be held accountable for making up for the difference should the loan balance exceed the home’s value. One way for this to happen is when the home’s market value plunges, or if the debtor lives for a reasonable length of time.
Generally, reverse mortgages can be a good source of finances to senior citizens whose net worth greatly rely on their home’s value. Furthermore, these loans can be pricey and intricate, and also very prone to several scams.
Reverse Mortgage ProcessAs the name suggests, a reverse mortgage works the other way around. A lender makes the payments to the homeowner instead. That said, the homeowner is given the opportunity to choose how the funds are provided, and is obliged only to pay for the interest. Positively, the interest is integrated onto the loan balance to keep the homeowner from paying for anything on the onset. As expected, throughout the loan, the debtor’s home equity decreases. Similar to a forward mortgage, the property becomes collateral in a reverse mortgage. In the event of a relocation or the debtor’s death, the proceeds from the home being sold go directly to the lending firm to make up for the reverse mortgage’s interest, mortgage insurance, and principal. Any other form of profit beyond what was loaned is given directly to the debtor (should he or she still be alive) or the debtor’s estate (if he or she is already deceased). Should there be involvement of heirs, they may decide to pay off the mortgage in the name of keeping the home. It’s also important to note that HECM proceeds are non-taxable. Although the arrangement may resemble income for the homeowner, the IRS considers this type of funding to be a loan advance.
Reverse Mortgage Pros and Cons
Convenient Access to Cash
No Monthly Mortgage Payments
Keep Ownership of Your Home
The inability to have the home inherited
Reverse Mortgage Requirements
Types of Reverse Mortgage
Proprietary Reverse Mortgage –
Single-Purpose Reverse Mortgage –
HECM for Purchase –
HECM Payment Options
Line of Credit
Modified Term/Line of Credit
Modified Tenure/Line of Credit
Single Disbursement Lump Sum
Is a Reverse Mortgage Right For You?A reverse mortgage allows homeowners to access a home’s equity to provide extra income during retirement. However, few people understand how reverse mortgages work and consider them as an option. Unlike a home equity loan, no payments must be made on the reverse mortgage while the borrower is living in the home. The loan must be repaid when the borrower moves out of the house, sells the home, or dies. With most reverse mortgages, you have at least three business days after closing to cancel the deal for any reason, without penalty. This is known as your “right to rescission.” To cancel, you must notify the lender in writing. Send your letter by certified mail, and ask for a return receipt. That will let you document what the lender got, and when. Keep copies of your correspondence and any enclosures. After you cancel, the mortgage lender has 20 days to return any money you’ve paid for the financing. by nico2me
FHA Loan Benefits and Advantages
Compared to conventional loans, FHA carries a lower interest rate. Since HUD insures the loan against future default, it is offered a lower rate.
Minimum requirement for an FHA loan is only 3.5% compared to 5% on conventional loans. The borrower can also get a “gift” from family members to be used as a down payment on the house.
Required minimum credit score for an FHA loan is lower compared to the conventional counterpart. TexasFHA.org will extend an FHA loan to borrowers with middle FICO scores as low as 580.
FHA loans can go as high as 57% debt-to-income (DTI) ratio with an automated underwriting system approval. Conventional loans can only go as high as 45% DTI. What does this mean? This allows the home buyer to purchase a higher sales price home. Lots of times, the higher DTI decides if a borrower qualifies for a home loan or not.
An FHA Loan Specialist Ready To Help You
Our FHA Loan Specialists are always available to help you and answer any questions. You may contact a dedicated FHA Loan Specialist through our website or by calling us directly. You may also chat with us to get a quick answer to your questions.
We make the FHA Loan Process Quick & Easy
Lenders often times will steer their clients away from an FHA loan due to their inexperience with the program. FHA Loans are a great source of funding for our clients. We share our knowledge and experience with FHA loans, making it easier for borrowers.
FHA Approved Lender
The Federal Housing Administration requires lenders offering FHA loans to go through an extensive approval process. We are FHA-approved and designated as a “Full Eagle” FHA mortgage lender offering FHA-insured home loans in Texas.
FHA Loans Help Make Home Ownership Possible For a Wider Range of People.