Why A FHA Reverse Mortgage Could Be Your Best Option

By Robin OBrien


A FHA reverse mortgage is a US government backed and insured program that allows seniors to receive money from the equity that is tied up in their home. There are two other programs available, Home Keeper and Jumbo, but over 90% of seniors chose the FHA program. Chances are if you're over 62, live in an averagely priced home and want peace of mind, the FHA program is the way to go.


Reverse mortgages are becoming increasingly popular as an aging population is finding that retirement can be improved with additional funds. This can be for all sorts of reasons; health care costs, vacations, and buying shares to name but a few.


Unlike a traditional forward mortgage, a lender agrees to hand over an agreed amount over to a borrower - usually as fixed monthly payments - on the understanding that the loan is not payable until the borrower no longer lives in the home. There are no monthly payments and the title deeds remain in the homeowners hands at all times.


An important point to remember is that the home does not have to be sold in order to pay back the loan. The loan can be paid back from any source of funds, whether by selling shares to raise the money or by getting a normal mortgage on the property etc.


To be eligible the borrower(s) must be over 62. If one of the co-owners is under 62 then, in order to get this type of loan, they must sign a quitclaim deed conveying the title to the over-62 co-owner. Also, the property must have no or very little mortgage remaining on it. Finally, the property must be a single-family dwelling, an FDA-approved condominium, or a manufactured house located on an owned lot. Properties that are ineligible include holiday homes, trailer homes, and commercial property.


The amount that can be borrowed is calculated using the value of the home's equity, its location, current interest rate and age of the owner. Generally, the more valuable the home and the older the homeowner the more that can be borrowed. However, the maximum amount that can be borrowed is capped.


Payment can be received in 5 ways; Tenure - equal monthly payments for as long as the borrower lives in the home. Term - equal monthly payments for a fixed period of time. Line of Credit (not available in Texas) - variable amounts that can be withdrawn until the line of credit is exhausted. Modified Tenure - a combination of line of credit and equal monthly payments for as long as the owner lives in the home. Modified Term - a combination of line of credit and equal monthly payments for a specified period of time.


A FHA reverse mortgage is federally insured. This guarantees that the borrower will always receive the agreed amount no matter what. There is an upfront insurance premium of 2% of the value of the home with an additional annual premium of 0.5% of the home's value.
The money received is tax free and does not affect Social Security or Medicare benefits.
Finally, he borrower is required to attend counseling from an independent third party who will talk and advise as to whether the FHA reverse mortgage is the best option.


The above is a brief overview; follow the links for more detailed advice on a FHA reverse mortgage and the Home Keeper reverse mortgage from Fannie Mae and much more reverse mortgage information.


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