Reverse Mortgages for Retired State Employees

 

 

The United States Department of Housing and Urban Development (HUD) administers the Home Equity Conversion Mortgage (HECM) Program that can be used by homeowners age 62 and older to convert the equity in their homes into a monthly stream of income or a line of credit, popularly known as a “reverse mortgage.”

 

The loan is funded through a lending institution such as a bank or credit union, and is repaid to the lending institution when the borrower no longer occupies the home. When the proceeds from the eventual sale of the home are insufficient to pay off the loan, HUD will pay the lender the amount of the shortfall.  HUD collects an insurance premium from all borrowers to provide this coverage.  To assist the homeowner in making an informed decision about a reverse mortgage, HUD requires the homeowner to receive consumer education about reverse mortgages from a HUD counselor.

 

The HUD counselor will discuss the program eligibility requirements, financial implications and alternatives to obtaining a HECM and the provisions for when the loan becomes due and payable.

 

To qualify for a reverse mortgage, you must:

•        Be at least 62 years old;

•        Own your property outright or have a small mortgage balance;

•        Occupy the property as your primary residence; and

•        Participate in a consumer education session.

 

The amount of the proceeds from the reverse mortgage is based on:

•        Age of the youngest borrower

•        Current interest rate

•        Lesser of appraisal value or the FHA insurance limit

 

The following financial requirements apply to reverse mortgages:

•        No income or credit qualifications are required of the borrower.

•        No repayment is required as long as the property is the primary residence.

•        Closing costs may be financed in the mortgage.  

 

 

To qualify for a reverse mortgage, a property must meet FHA property standards and flood requirements. You may apply even if your present home was not financed with a FHA-insured mortgage. The kinds of properties eligible for reverse mortgages are:

•        Single family or 1- 4 unit home with one unit occupied by the borrower

•        HUD- approved condominiums

•        Manufactured homes and leased land

 

Five repayment plans are available:

•        Tenure -  equal monthly payments

•        Term - equal monthly payments for a fixed period of months

•        Line of Credit - unscheduled payments in amounts that borrower chooses

•        Modified Tenure - line of credit with monthly payments

•        Modified Term - line of credit with fixed time for monthly payments

 

The Borrower can restructure payment options for a $20 fee. 

 

 

 

In her excellent article in the Business Section of the Atlanta Journal-Constitution on Sunday, February 3, 2008, Marilyn Geewax included five questions that anyone considering a reverse mortgage should answer.  They are reprinted here in their entirety:  

 

1. Do you really need a reverse mortgage? If you want some cash to take that dream vacation, a reverse mortgage is an expensive way to pay for it. Taking out a pricey loan to make investments or to purchase insurance products is also not a good idea. Make sure that the needs you want to address are really worth the costs.

 

2. Do you have less costly options? If you could easily make the monthly repayments on a home equity loan or home equity line-of-credit, these alternatives are less costly than a reverse mortgage. Have you looked into the costs and benefits of selling your home and moving to a less expensive one?

 

3. Can you afford a reverse mortgage? The younger you are when you take out a reverse mortgage, the longer compound interest will grow, and the more you will owe. On the other hand, due to high upfront costs, these loans can be especially costly if you sell and move just a few years after taking one out.

 

4. Can you afford to start using up your home equity now? The more you use now, the less you will have later when you may need it more, for example, to pay for emergencies, health care needs or everyday living expenses. Homeowners who wait have "a reasonable expectation of securing a better product at a lower cost in the not-too-distant future," according to a report by the Fidelity Research Institute.

 

5. Do you fully understand how these loans work? Before considering one, you need to do your homework carefully and thoroughly. Start with this Web page: http://www.aarp.org.

 

 

If you are considering a HUD-insured reverse mortgage, you should work very closely with a HUD counselor.  You may call 202-708-1112 to obtain the address of the HUD office closest to you.  Beware of scam artists who will charge thousands of dollars for information that HUD provides free of charge!

Visit the HUD web site at http://www.hud.gov for more information.

 

 

 

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