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Reverse Mortgages are becoming popular in America. The U.S. Department of
Housing and Urban Development (HUD) created one of the first. HUD'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 free information about reverse
mortgages by calling AARP at: 1-800-209-8085, toll-free. 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!
1. 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(s) no longer use the home as their principal residence.
HUD's reverse mortgage provides these benefits, and it is federally-insured
as well.
2. Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD's Federal Housing
Administration (FHA) requires that the borrower is 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 must
live in the home. You are further required to receive consumer information
from HUD-approved counseling sources prior to obtaining the loan. You can
contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the
name and telephone number of a HUD-approved counseling agency and a list of
FHA approved lenders within your area.
3. Can I apply if I didn't buy my present house with FHA mortgage insurance?
Yes. While your property must meet HUD minimum property standards, it
doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new
HUD reverse mortgage will be a new FHA-insured mortgage loan.
4. 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.
It is possible for condominiums to qualify under the Spot Loan program. The
home must be in reasonable condition, and must meet HUD minimum property
standards. In some cases, home repairs can be made after the closing of a
reverse mortgage.
5. 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 versus debt ratio to qualify for the loan, and
you are required to make monthly mortgage payments. The reverse mortgage is
different in that it pays you, and is available regardless of your current
income. The amount you can borrow depends on your age, the current interest
rate, other loan fees, 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, 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 and other conventional payments like
utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be
foreclosed or forced to vacate your house because you "missed your mortgage
payment."
6. Can the lender take my home away if I outlive the loan?
No! Nor is the loan due. You do not need to repay the loan as long as you or
one of the borrowers continues to live in the house and keeps the taxes and
insurance current. You can never owe more than your home's value.
7. 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 HUD's reverse mortgage loan. This debt will never be
passed along to the estate or heirs.
8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate,
other loan fees 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, the lower the interest, the more you can borrow.
9. Should I use an estate planning service to find a reverse mortgage?
I've been contacted by a firm that will give me the name of a lender for a
"small percentage" of the loan? HUD does NOT recommend using an estate
planning service, or any service that charges a fee just for referring a
borrower to a lender! HUD provides this information without cost, and
HUD-approved housing counseling agencies are available for free, or at
minimal cost, to provide information, counseling, and free referral to a
list of HUD-approved lenders. Before you agree to pay a fee for a simple
referral, call 1-800-569-4287, toll-free, for the name and location of a
HUD-approved housing counseling agency near you.
10. 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 period of months selected.
Line of Credit - unscheduled payments or in installments, at times and in
amounts of borrower's choosing until the line of credit is exhausted.
Modified Tenure - combination of line of credit with monthly payments for as
long as the borrower remains in the home.
Modified Term - combination of line of credit with monthly payments for a
fixed period of months selected by the borrower.
Return to the HECM homepage




Content updated June 28, 2004


U.S. Department of Housing and Urban Development
451 7th Street, S.W., Washington, DC 20410
Telephone: (202) 708-1112 Find the address of a HUD office near you