FHA Reverse Mortgage Loans and HECM Options
What Is an FHA Reverse Mortgage?
The HECM is insured by the Federal Housing Administration and administered under the U.S. Department of Housing and Urban Development. It is the most widely used type of reverse mortgage.
A reverse mortgage can provide access to home equity through several payment options while allowing eligible homeowners to continue living in their primary residence.
Who Can Qualify for an FHA Reverse Mortgage?
The borrower must generally live in the property as a primary residence and meet the program’s financial and property requirements.
A younger spouse who lives in the home may qualify as a non borrowing spouse under applicable HECM requirements. In certain circumstances, a qualifying non borrowing spouse may be able to remain in the home after the borrowing spouse passes away or moves out, without immediately becoming responsible for repayment.
Eligibility depends on the borrower’s circumstances, the property, existing mortgage obligations, and other program requirements.
Eligible Properties for an FHA Reverse Mortgage
Single Family Homes and Townhomes
Condominiums
Manufactured Homes
Two to Four Unit Properties
How an FHA Reverse Mortgage Works
Unlike a traditional mortgage, the borrower generally receives funds rather than making a required monthly mortgage payment to the lender.
The loan balance can increase over time as interest and applicable mortgage insurance charges accrue.
Borrowers remain responsible for meeting the ongoing obligations of the loan, including keeping the home as their primary residence and staying current on property charges such as property taxes, homeowners insurance, and required maintenance.
Step 1
Check Eligibility
Step 2
Step 3
Step 4
Step 5
FHA Reverse Mortgage Payment Options
Lump Sum
Reverse Mortgage Line of Credit
Term Payments
Tenure Payments
FHA Reverse Mortgage Interest Rates
Adjustable rate HECMs are tied to an applicable index rather than the prime rate commonly associated with a traditional HELOC.
Reverse mortgage rates and pricing can change based on market conditions. Crestico can provide a personalized proposal showing the applicable initial rate, expected rate, and rate cap for an eligible borrower.
FHA Reverse Mortgage Loan Amounts and Lending Limits
HUD establishes the applicable HECM lending limit. When a home’s value exceeds that limit, the HECM calculation uses the applicable lending limit rather than the home’s full market value.
Because the factors used in the calculation can change, the amount available to a borrower can vary from one application to another.
All HECM loans are non recourse loans. This means the borrower or estate generally will not be required to repay more than the value of the home when the loan becomes due, subject to the terms and conditions of the program.
FHA Mortgage Insurance Premium for HECM Loans
The mortgage insurance helps protect lenders and supports the FHA insurance structure behind the program. It also provides important protection associated with the non recourse nature of HECM financing.
Mortgage insurance costs can include an upfront mortgage insurance premium and an ongoing mortgage insurance premium. The applicable amount depends on current FHA and HECM requirements.
Because program costs and limits can change, borrowers should review the current costs with a qualified reverse mortgage professional before proceeding.
HECM Upfront Distribution Requirements
The amount that can be accessed initially depends in part on the borrower’s existing mortgage debt and other obligations.
When applicable, some proceeds may initially remain available through the reverse mortgage line of credit rather than being distributed entirely at closing.
This structure is intended to help borrowers access their equity over time instead of automatically taking all available proceeds at once.
Reverse Mortgage Line of Credit Growth
Unused available credit can increase over time based on the applicable growth rate under the program. This can provide borrowers with additional borrowing capacity in the future, subject to the terms of the HECM.
The line of credit is also different from a traditional HELOC because the HECM structure provides protections that can help preserve available credit when the borrower continues meeting the program’s obligations.
What Are the Ongoing Responsibilities With an FHA Reverse Mortgage?
The borrower must continue to meet the applicable loan requirements, which generally include:
Is an FHA Reverse Mortgage Right for You?
It may be used for purposes such as supplementing retirement income, managing existing mortgage debt, creating a financial reserve, or accessing home equity for other eligible financial needs.
The right option depends on your age, home value, existing mortgage balance, financial goals, and how long you expect to remain in the property.
Crestico can help you review the available reverse mortgage options and determine whether a HECM fits your situation.
