Reverse mortgages are a unique type of loan that lets you convert the accrued equity of your home into usable funds. Home Equity Conversion Mortgages (or HECMs) are a reverse mortgage insured by the Federal Housing Administration (FHA) under the U.S. Department of Housing and Urban Development. Because HECM reverse mortgages are regulated by the government, they are subject to specific rules and limits, many of which are designed to protect the borrower, such as counseling, financial assessment and more.
While the government insures HECMs, it’s important to know that a HECM reverse mortgage is not a government loan. Private lenders like ReverseMortgages.com make the loans to borrowers. The government’s insurance on HECM reverse mortgages helps protect the borrower if the lender cannot make a payment or if the loan balance is higher then the home’s value at the end of the loan. To pay for the government’s insurance on the reverse mortgage, borrowers pay mortgage insurance fees at the loan closing and again annually. The annual insurance fee is 1.25 percent of the outstanding loan balance.
Reverse mortgage requirements include borrowers meeting three essential requirements:You Must:
In addition to the three essential requirements above, you’ll also have to meet several other guidelines to qualify for a reverse mortgage.
The Federal Housing Administration (FHA) requires a financial assessment to determine homeowners' willingness and capability to remain current on their obligations and ensure they qualify. During this assessment, your lender will review your credit history, analyze your income and compare it with your expenses. Potential borrowers who come up short financially may be able to set money aside from their reverse mortgage to cover those future expenses.
HECMs are the most frequently used reverse mortgages in the United States today, and they comprise the majority of loans ReverseMortgages.com issues. On our website, we use the phrase “reverse mortgages” and the acronym “HECM” interchangeably. In all references, this refers to the same loan product: a government-insured home equity conversion mortgage or reverse mortgage.