The type of reverse mortgage you choose will depend on your needs. Read about the different types of reverse mortgages to see which might work best for you.
Reverse Mortgage Types
There Are Three Main Types Of Reverse Mortgages
- HUD reverse mortgages, aka Home Equity Conversion Mortgage or HECM
- "Single-purpose reverse mortgages, administered by government or charitable programs
- Proprietary or niche reverse mortgage products
HUD Reverse Mortgages, aka Home Equity Conversion Mortgage or HECM
The proper pronunciation is "heck'um." This is the most common type of reverse mortgage. These loans are readily available because they come from the US government through HUD. Under the HUD umbrella agency, they are insured by FHA. They follow FHA lending guidelines which include FHA loan amount limitations determined by the median home price in the property's county. Basic loan features include:
- They are endowed with certain guarantees, such as the homeowner being allowed to remain in the home for life, regardless of what happens with the home's value or the balance of the reverse mortgage.
- The youngest borrower must be at least sixty-two years old. The older the borrowers are, the higher the loan amount for which they qualify. Loan amounts are normally based on the age of the youngest borrower, the interest rate and costs, and the available equity of the home.
- Qualifying for a HECM is easy if you are old enough and home is owned free and clear (or has a small mortgage balance). You do not need to prove any income or have any liquid assets. No credit score is required and your debts are not considered. Even a recent bankruptcy is acceptable as long as it has been discharged.
- You may take the equity in the form of either a lump sum, monthly payments for a specified term, monthly payments for life, a credit line, or some combination of these.
Single Purpose Reverse Mortgage Programs
These programs are area-specific and are for low income seniors. Contact your area housing agency or a senior advocacy group such as AARP. Your state or local government agency may offer programs like these:
- Property Tax Deferment or PTD programs allow qualified seniors to finance their property taxes as they become due. Many states offer this type of program. You can contact your county property tax collector's office for specific details. These reverse mortgages are low cost, and usually have no origination fee and a fixed interest rate.
- Less common is the Deferred Payment Loan or DPL reverse mortgage. Some state or local governments offer this type of program for qualified repairs or improvements on the home. Usually the repairs that qualify are related to safety.
Proprietary Or Niche Reverse Mortgage Products
If a HECM or other government reverse mortgage option does not work for your goals, there may be a proprietary product available. For example, those with more expensive property who want to borrow more may choose a jumbo reverse mortgage. Proprietary means that there is an investor that has designed a niche product to service those borrowers who don't want or qualify for the normal reverse mortgage products for some reason. Contact a reverse mortgage lender in your area to see if there is an investor who has a niche product that will work for you. You can expect proprietary reverse mortgages to be more expensive.
Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.