FHA Reverse Mortgages

The FHA reverse mortgages or better known as the Home Equity Conversion Mortgage (HECM), is a loan program offered by the U.S. Department of Housing that allows borrowers to withdraw a portion of the equity of their homes and convert the fund into cash. This program is exclusively granted to eligible senior citizen (62 or older) homeowners who have fully paid off their mortgage or with small outstanding balance on their mortgages.

Eligibility Criteria

Aside from the applicant's age as a requirement to become eligible, the following criteria are considered to qualify for the HECM reverse mortgage:

  • the property is being used as the principal residence of the applicant
  • the applicant fully owns the property or has only a small outstanding loan balance
  • the applicant must have a reputable record in any loan offered by the federal government
  • the applicant must attend a consumer information class conducted by a FHA-certified HECM counselor

Payment Plans

Borrowers have several options to receive their payments from the FHA reverse mortgage program. They are given the right to choose which payment alternative they prefer to use in withdrawing the funds. The amount of capital that a borrower can avail may be based from the home's value or the FHA HECM mortgage maximum limit of $625,500.

Payment options are:

  • tenure plan - equal monthly payments provided that the borrower continues to stay and use the property as his principal residence
  • term plan - equal monthly payments within a set period of months chosen by the borrower
  • line of credit plan - payments are be given in installments or unscheduled basis wherein the borrower can get the amount he wants, until the fund is fully withdrawn
  • modified term plan - a combination of line of credit plus monthly payments disbursed for a fixed period of months

In the event the borrower wants to change the payment option he has availed, he is required to pay a fee of $20.

Fees and Charges

Availing the HUD reverse mortgage loan involves several fees that the borrower needs to pay. He can finance the related costs by deducting them from the amount of the loan and from the proceeds of the loan.

  • origination fee - A home with a $125,000 value can be charged an origination fee of up to $2,500. The higher the home is worth of, the higher the charges. However, a maximum of $6,000 origination fee is set by the government for all HECM transactions.
  • closing costs - These charges include fees given to the third party involved in the closing of the loan. Fees that are covered in the closing costs are: appraisal, surveys, mortgage taxes, title search and insurance, recording fees, inspections, and credit checks.
  • mortgage insurance premium (MIP) - 2% of the home value will be automatically deducted for MIP at closing and a separate monthly MIP that equals to 0.5% of the balance will be charged.
  • servicing fee - This fee is added to the loan balance each month. The types of services covered in this cost are the delivery of account statements, disbursing of proceeds, and other related assistance. The lender can only charged the borrower a maximum fee of $30 for loans which interest rates are adjusted yearly, and $35 for loans which interest rates are adjusted monthly.