A Reverse Mortgage is a loan that allows qualifying homeowners to convert a portion of the equity in their home into cash. A Home Equity Conversion Mortgage (HECM) loan, also known as a Reverse Mortgage, does not become due as long as the borrowers live in the home as their primary residence and continue to meet the obligations of the mortgage, including paying property taxes and insurance on the home.
A HECM loan is insured by the Federal Housing Administration (FHA). Loan proceeds can be used to pay medical bills, to finance living expenses, in-home care, your dream vacation or any extra cash can be saved for unexpected expenses. 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. Borrowers must meet financial eligibility criteria as established by HUD. 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, a 2-4 unit owner occupied house*, a HUD-approved condominium or a manufactured home that meets FHA requirements.
With a HECM, the borrower is required to pay an initial Mortgage Insurance Premium (MIP), as well as an annual MIP of 1.25 percent. (Please see chart below for more detail regarding the initial MIP.) The borrower must also pay 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, and the lesser of the appraised value of the home, sale price or maximum lending limit. The funds available to you may be restricted for the first 12 months after loan closing, due to HECM requirements. The borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance. Consult a Liberty advisor for detailed program terms. The loan proceeds are not taxed as income or otherwise (though you must continue to pay required property taxes). 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.
*Not applicable to HECM for Purchase