A reverse mortgage allows eligible homeowners to access a portion of their home equity without making monthly mortgage payments. The most common type is a Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA) and is available to qualified homeowners age 62 and older.
A reverse mortgage can also be used to purchase a new primary residence through a HECM for Purchase, allowing eligible buyers to combine their own funds with reverse mortgage proceeds to finance the purchase.
With a reverse mortgage, the home remains in the borrower's name. Instead of making monthly mortgage payments, interest and applicable fees are added to the loan balance over time. Depending on the loan and the borrower's circumstances, proceeds may be available through options such as a line of credit, monthly payments, a lump sum, or a combination of payment methods.
Borrowers must continue to use the home as their primary residence, keep the property in good condition, and remain current on required property charges such as property taxes and homeowners insurance. The loan generally becomes due when the home is sold, the borrower no longer occupies it as a principal residence, or the last surviving borrower dies, subject to applicable HECM rules.
Because a reverse mortgage affects both home equity and the amount ultimately owed, it's important to understand the costs, responsibilities, and alternatives before deciding whether one fits your financial goals.
HECM reverse mortgages include important federal consumer protections, but borrowers also have ongoing responsibilities throughout the life of the loan.
The home remains yours: You retain title to your home as long as you meet the requirements of the loan.
HECM loans are FHA-insured: A Home Equity Conversion Mortgage is insured by the Federal Housing Administration and is subject to federal HECM requirements.
The loan is generally non-recourse: With an FHA-insured HECM, borrowers or their estates generally will not owe more than the value of the home when the loan is repaid, subject to applicable program requirements.
You remain responsible for the property: Borrowers must continue to pay property taxes and homeowners insurance, maintain the home, and meet occupancy and other loan requirements.
Before obtaining a HECM, borrowers are also required to receive counseling from a HUD-approved housing counseling agency so they can better understand the loan, its costs, alternatives, and responsibilities.
A reverse mortgage may be worth considering for homeowners who have built substantial equity in their home and want to use some of that equity as part of their financial plan.
Depending on the homeowner's goals and circumstances, a reverse mortgage may provide additional monthly cash flow, establish a line of credit, provide funds for expenses, or eliminate the required monthly principal and interest payment on an existing mortgage.
A reverse mortgage isn't the right solution for everyone. The costs of the loan, how long you plan to remain in the home, your ability to continue paying property taxes and homeowners insurance, and the effect on the equity remaining in your home should all be considered before making a decision.
For a Home Equity Conversion Mortgage (HECM), at least one borrower must generally be age 62 or older, and the home must be the borrower's principal residence. Borrowers must also meet applicable financial and property requirements.
Eligibility generally considers:
Meeting the basic eligibility requirements does not automatically mean a reverse mortgage is the right choice. We can help you understand how the program works and whether it may fit your financial goals.
Below is the most common process for getting a reverse mortgage loan. Our professionals are eager to help you understand the reverse mortgage loan process. Please contact us with any questions.
Step 1 - Explore Your Reverse Mortgage Options
We'll discuss your goals, your home, and your financial situation to help you understand whether a reverse mortgage may be an appropriate option and what programs may be available.
Step 2 - Complete HUD-Approved Counseling
Before proceeding with a HECM, borrowers must complete counseling with a HUD-approved housing counseling agency. The counselor will explain how reverse mortgages work, the costs and responsibilities involved, and alternatives you may want to consider.
Step 3 - Complete Your Application
If you decide to move forward after counseling, you'll complete the loan application and provide the information and documentation needed to process your loan.
Step 4 - Appraisal and Loan Processing
An appraisal is generally completed to determine the home's value and evaluate whether the property meets applicable FHA requirements. Additional documentation or property-related items may be required depending on the home and the loan.
Step 5 - Underwriting
The loan is reviewed to determine whether the borrower, property, and transaction meet applicable HECM and lender requirements.
Step 6 - Closing
Once the loan is approved and ready to close, you'll review the final loan documents and terms before signing.
Step 7 - Accessing Your Loan Proceeds After closing and any applicable rescission period, funds become available according to the payment option selected and the requirements of the loan. Available options can vary based on the type of HECM and the borrower's circumstances.
A reverse mortgage isn't only for homeowners who want to access equity in a home they already own. Eligible buyers may also be able to use a HECM for Purchase to buy a new primary residence.
With a HECM for Purchase, the buyer combines funds they bring to closing with proceeds from the reverse mortgage to purchase the home. The amount the buyer needs to contribute depends on factors such as age, the purchase price, the home's appraised value, and current interest rates.
This option may be worth considering for someone who wants to downsize, move closer to family, relocate, or purchase a home that better fits their needs in retirement while avoiding a required monthly principal and interest mortgage payment.
As with other HECM loans, borrowers must continue to meet the requirements of the loan, including occupying the home as their primary residence and paying property taxes, homeowners insurance, and applicable property expenses.
At @Home Mortgage, we can help you compare a HECM for Purchase with other financing options so you can understand the differences before deciding which approach fits your goals.
A reverse mortgage does not require monthly principal and interest payments while the loan remains in good standing. Instead, the loan balance generally increases over time as interest and applicable fees are added to the amount borrowed.
The loan generally becomes due when the last borrower sells the home, permanently moves out of the home, passes away, or no longer meets the requirements of the loan. Borrowers must continue to occupy the home as their primary residence and remain current on obligations such as property taxes, homeowners insurance, and property maintenance.
When the loan becomes due, the home may be sold and the proceeds used to repay the reverse mortgage. The borrower or heirs may also have options to repay the balance and keep the home, depending on the circumstances and applicable HECM requirements.
HECM reverse mortgages are non-recourse loans. Generally, the borrower or estate will not be required to repay more than the value of the home when the loan is repaid, subject to applicable FHA requirements.
Any remaining equity after the reverse mortgage and applicable costs are repaid belongs to the homeowner or the homeowner's estate.
A reverse mortgage has closing costs and fees, just like other types of mortgage financing. The actual costs vary based on the loan, the property, and the borrower's circumstances.
Common HECM costs may include:
Some costs may be financed as part of the reverse mortgage rather than paid entirely out of pocket at closing, depending on the transaction and program requirements. Financing costs increases the loan balance and reduces the equity remaining in the home.
Before closing, you'll receive loan disclosures showing the costs associated with your specific reverse mortgage so you can review them before making a final decision.
When the last borrower passes away, the reverse mortgage generally becomes due and payable. The borrower's heirs do not automatically lose the home, and they are not required to simply turn the home over to the lender.
Heirs may have options depending on their circumstances. They may choose to sell the home and use the proceeds to repay the reverse mortgage, or they may choose to keep the home by satisfying the amount required under applicable HECM rules.
An FHA-insured HECM is a non-recourse loan. This means that if the loan balance is greater than the home's value when the loan becomes due, the borrower or estate generally is not personally responsible for paying the difference, subject to applicable FHA requirements.
If the home is sold for more than the amount required to repay the reverse mortgage and applicable costs, the remaining equity belongs to the homeowner's estate or heirs.
