FHA Reverse Mortgages from United Lending
The Home Equity Conversion Mortgage (HECM), or “reverse mortgage”, is an FHA program which enables homeowners to turn some of the equity in their home into tax-free income without making monthly payments on a mortgage. (Click here to skip this informational page and go straight to a reverse mortgage quote request form.)
FHA has mandatory counseling for all potential borrowers prior to applying for a reverse mortgage. HECM counselors will discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM. They will also discuss provisions for the mortgage becoming due and payable. Upon the completion of HECM counseling, you should be able to make an independent, informed decision of whether this product will meet your needs. You can search online for a HECM counselor, but we will provide you with a list of counselors in your area from which you can choose the counselor of your choice, to be counseled by phone or in person.
- Be 62 years of age or older (everyone on title)
- Own the property outright or have a small mortgage balance (roughly under 60% of home value)
- Occupy the property as your principal residence
- Not be delinquent on any federal debt
- Participate in a consumer information session given by an approved HECM counselor
- Age of the youngest borrower
- Current interest rates
- Lesser of appraised value or the HECM FHA mortgage limit
- Initial Mortgage Insurance Premium (MIP) options (2% Standard or 0.1% Saver)
- No employment qualifications are required, but minimum income requirements do apply
- No repayment as long as the property is your principal residence and the obligations of the mortgage are met
- Closing costs may be financed in the mortgage
- Single family home or 1-4 unit home with one unit occupied by the borrower
- HUD-approved condominiums
- Manufactured home that meets FHA requirements (NOT currently offered by our company)
How the Program Works
If you are a homeowner age 62 or older and have paid off your mortgage or have only a small mortgage balance remaining, and are currently living in the home, you are probably eligible to participate in FHA’s reverse mortgage program. The program allows you to borrow against the equity in your home. You can select from five payment plans:
- 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 installments, at times and in an amount of your choosing until the line of credit is exhausted. Typically this option is taken as a lump sum at closing.
- Modified Tenure – combination of line of credit plus scheduled monthly payments for as long as you remain in the home.
- Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
Unlike ordinary home equity loans, a FHA reverse mortgage HECM does not require repayment as long as the home is your principal residence and the obligations of the mortgage are met. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to you or your heirs.
If the sales proceeds are insufficient to pay the amount owed, FHA will pay the lender the amount of the shortfall. FHA collects an insurance premium from all borrowers to provide this coverage.
You can borrow more with the HECM Standard option. Also, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow. If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow. Again, just contact us to find out how much you may be eligible to receive.
There is no limit on the value of homes qualifying for a HECM. The value of your home will be determined by an independent appraisal. However, the amount that you may borrow is derived from the lower of the appraised value or the FHA HECM mortgage limit of $625,500. You are charged an upfront insurance premium of 2 percent of the maximum claim amount for HECM Standard and .01 percent for the HECM Saver. In addition, you will have an annual mortgage insurance premium of 1.25%.
You can pay for most of the costs of a HECM by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you. The HECM loan includes several fees, including an origination fee, closing costs, mortgage insurance premium, interest and servicing fees.
You may pay an origination fee to compensate the lender for processing your HECM loan. A lender can charge a HECM origination fee up to $2,500 if your home is valued at less than $125,000. If your home is valued at more than $125,000, lenders can charge 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are currently capped at $6,000 and you may be able to waive the origination fee completely by taking a slightly higher interest rate. Typically our clients pay NO origination fee when using our lump sum program. We will explain this to you in detail when you apply.
Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees.
Mortgage Insurance Premium (MIP)
You will incur a cost for FHA HECM insurance. You can finance the mortgage insurance premium (MIP) as part of your loan. You will be charged an initial MIP at closing, which is either 2% (HECM Standard) or .01% (HECM Saver) of the lesser of the appraised value of your home or the FHA HECM mortgage limit for your area. Over the life of the loan, you will also be charged an annual MIP that equals 1.25% of the mortgage balance. The HECM insurance guarantees that you will receive expected loan advances. The insurance also guarantees that, if you or your heirs sell your home to repay the loan, your total debt can never be greater than the value of your home.
Lenders or their agents provide servicing throughout the life of the HECM. Servicing includes sending you account statements, disbursing loan proceeds and making certain that you keep up with loan requirements such as paying taxes and insurance. HECM lenders may charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate and $35 if the interest rate adjusts monthly. At loan origination, HECM lenders set aside the servicing fee and deduct the fee from your available funds. Each month the monthly servicing fee is added to your loan balance. (United Lending does NOT charge a servicing fee on any of our programs.)
HECM borrowers can choose an adjustable interest rate or a fixed rate. If you choose an adjustable interest rate, you may choose to have the interest rate adjust monthly or annually. Lenders may not adjust annually adjusted HECMs by more than 2 percentage points per year and not by more than 5 total percentage points over the life of the loan. FHA does not require interest rate caps on monthly adjusted HECMs. If you are taking a single lump-sum payout at closing, then a fixed-rate program is your only option.
Getting The Process Started
With some very basic information, we can run the numbers for you to see if you have enough equity in your home to be eligible for a reverse mortgage. Complete our Reverse Mortgage Quote Form to find out if you are eligible. If you meet the eligibility criteria, we will send you a written proposal with details about the program, counseling information, and numbers for your specific situation. If you like what you see, we will help you get started with the mandatory FHA counseling, before proceeding with your official loan application. If you just have some quick questions for now, call us or drop us an email so that we may assist you.
“Real Deals” that we have funded to give you an idea of how our clients have used their proceeds.
Informative articles about Reverse Mortgages in the news…
10/22/12 – “What’s Right with Reverse Mortgages”, University of Pennsylvania
8/7/12 – “Reversing the Negative View of Reverse Mortgages”, The Wall Street Journal
6/2/12 – “Reverse Morgages Becoming Planning Tool”, Austin American-Statesman
2/5/12 –“Reverse Mortgage May Be Best Option for Elderly Homeowner”, Los Angeles Times