A Reverse Mortgage loan is a home loan that allows qualifying homeowners convert a portion of the equity in their home into cash. Reverse Mortgage loan borrowers do not have to repay the HECM loan until the borrowers no longer live in the home as their principal residence or fail to meet the obligations of the mortgage, including paying taxes and insurance on the home.
The HECM Standard is the traditional Federal Housing Administration (FHA) insured Reverse Mortgage loan. Loan proceeds can be used to pay medical bills, to finance living expenses, in-home care, and your dream vacation or for extra cash. Like with all Reverse Mortgage loan products, certain eligibility requirements must be met. Borrowers must be 62 years of age or older and own the property outright or have paid down a considerable amount. Borrowers must live in the home as their primary residence and cannot be delinquent on any federal debt. They must also meet with a HUD approved Reverse Mortgage Counselor prior to applying for a Reverse Mortgage loan.
To be eligible for a Reverse Mortgage loan, the property must also meet certain eligibility requirements. The property must be a single family home or 2-4 unit home with one unit occupied by the borrower, a HUD-approved condominium project or a manufactured home that meets FHA requirements.
The HECM (Home Equity Conversion Mortgage) Standard loan was designed for those who need the most money available, allowing you to borrow the maximum amount with higher upfront costs than the HECM Saver. With a HECM Standard, the borrower is required to pay an initial Mortgage Insurance Premium (MIP) of 2% of the maximum claim amount (which is the lesser of the appraised value; national mortgage limit, or sales price), an origination fee, title insurance and other closing costs (see Fees).
Borrowers may receive their loan funds through monthly installments, a lump sum, as a line of credit or through a combination of these options. The amount of the loan depends on the age of the youngest borrower, the interest rate, type of Reverse Mortgage loan and the lesser of the appraised value of the home, sale price or maximum lending limit. The proceeds are tax-free; however it is always best to consult a financial professional. In addition, provided the home is sold to repay the loan, borrowers’ heirs will not be personally liable if the loan balance exceeds the value of the home.