The Department if Housing and Urban Development (HUD) is the federal agency that includes the FHA as one of the programs it administers. The federal terminology for a reverse mortgage is a Home Equity Conversion Mortgage (HECM). If you see the term HECM it’s the same thing as a reverse mortgage. To date, HUD has insured 90% of all the reverse mortgages that have been provided in the U.S. Like FHA mortgages, the HUD reverse mortgages are issued by a private lender under HUD guidelines. The reverse mortgage itself is insured by HUD.
Reverse mortgages are proving to be the salvation for thousands of seniors who haven’t got quite enough with Social Security, Medicare and any private pension they may have to live a comfortable retired life. The flip side of that fact is that the rapid rise of reverse mortgages has caused a lot of scam artists to gravitate to the industry. For that reason, prior to signing off on a federally insured HECM (reverse mortgage) HUD insists on a counseling session for potential borrowers with a professional from HUD or the FHA.
The qualifications for a HUD reverse mortgage are as follows:
• The borrower must be 62 years of age or older.
• The house must be paid off or the mortgage small enough that it can be closed out with a portion of the reverse mortgage proceeds.
• The borrower must go through a counseling session with a HUD approved counselor who provides consumer information that will help the applicant get a fair loan.
• The home must be a single family dwelling of one to four units that is the borrower’s principal place of residence. Townhouses, condos and some mobile homes are eligible.
It is NOT necessary that your home was purchased with an FHA loan. Homes that were purchased with jumbo loans or some other non-FHA insured loan are eligible for HUD reverse mortgages. The FHA mortgage guidelines do play into the HUD reverse mortgage formula that will determine how large a reverse mortgage can be.
The amount of a reverse mortgage is based on the borrower’s age, the current interest rate and also the appraised value of the home versus what the FHA conforming loan limit is for the area in which the borrower lives. The lesser figure will be the HUD reverse mortgage limit. HUD sums up the mortgage value issue by saying that “Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.”
Check our our Reverse mortgage FAQ for more details.