What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower no longer uses the home as the principal residence. FHA's reverse mortgage provides these benefits, and it is federally-insured as well.

Can I qualify for an FHA reverse mortgage?

To be eligible for a FHA reverse mortgage, FHA requires that you (the borrower) be a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and live in the home. You also must receive consumer information from a HUD-approved counseling agency before obtaining the loan. You can contact the Housing Counseling Clearinghouse on (800) 569-4287 to get the name and telephone number of an approved counseling agency and a list of FHA approved lenders within your area.

Can I apply if I didn't buy my present house with FHA mortgage insurance?

Yes. It doesn't matter if your earlier mortgage was not insured by FHA. Your new FHA reverse mortgage will be a new FHA-insured mortgage loan.

What types of homes are eligible?

Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. Call 1-800-CALL-FHA and ask if your condominium project is FHA-approved. Don't get discouraged if it isn't, there is still an alternative. Ask your lender if it is possible for to qualify your project under the Spot Loan program. Do not sign any papers until you are certain that your project qualifies.

What's the difference between a reverse mortgage and a bank home equity loan?

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income in relation to debt to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different because it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or the FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are and the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, hazard insurance and other property charges. Unlike a traditional second mortgage, with an FHA-insured HECM, you cannot be foreclosed or forced to vacate your house because you dont make your principal and interest payments.

Can the lender take my home away if I outlive the loan?

No! You do not need to repay the loan as long as you or one of the borrowers continues to occupy the property as the primary residence, keep the taxes and insurance current and perform the other obligations of the mortgage.

Will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by the FHA's reverse mortgage loan. This debt will never be passed along to the estate or heirs.

How much money can I get from my home?

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, and the lower the interest, the more you can borrow.

Should I use the services of a firm that will give me the name of a lender for a small percentage of the loan?

FHA does not recommend using an estate planning service, or any service that charges a fee simply for referring a borrower to a lender. FHA provides this information without cost. HUD-approved housing counseling agencies are available (for free or at minimal cost) to provide consumer education information, counseling, and a listing of HUD-approved lenders for free. Call toll-free (800) 569-4287 for the name and location of a HUD-approved housing counseling agency near you.

How do I receive my payments?

You have five options:

• Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term - equal monthly payments for a fixed number of months selected.
• Line of Credit - unscheduled payments or in installments, at times and amounts of your choosing until the line of credit is exhausted.
• Modified Tenure - combination of line of credit and monthly payments for as long as the borrower remains in the home.
• Modified Term - combination of line of credit and monthly payments for a fixed period of months which you choose

Reverse mortgages are becoming popular in America. The FHA created one of the first. The FHA's reverse mortgage is a federally-insured private loan, and it's a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, and more. You can receive additional free information about reverse mortgages by calling AARP at: (800) 209-8085, toll-free, or by going to the website at http://www.aarp.org/. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you!