Is a Home Equity Conversion Mortgage Right for You?
First of all, you need to get the facts from a licensed and qualified Financial Advisor, not your run of the mill mortgage broker. A Home Equity Conversion Mortgage (most commonly know as a Reverse Mortgage), is administered by HUD (U.S. Department of Housing and Urban Development) and insured by the FHA (Federal Housing Administration). The new Home Equity Conversion Mortgage program is not like the old program that was considered a product of last resort. The program now requires Financial Assessment ensuring homeowners have good credit and sufficient income.
In addition to at least one borrower being at least 62 years old, some key requirements include:
- Occupying the home as your primary residence
- Not being delinquent on any federal debt
- Attending a Home Equity Conversion Mortgage counseling session with a HUD-approved HECM counselor
- Income to cover the ongoing costs of Homeowners Insurance, Property Taxes, Homeowners Dues and Utilities.
- Income and Credit is used in determining if a LESA (Life Expectancy Set Aside) is required.
The amount of funds available, also known as the Principal Limit, is determined by:
- Age of the youngest borrower
- The house value
- The expected interest rates
As with most loans, there are fees associated with the loan that borrowers should be aware of. These fees include:
- Origination fees
- Third party charges
- Initial (IMIP) and ongoing mortgage insurance premium (MIP)
- Interest which accrues over the life of the loan