Reverse Mortgage Basics

A reverse mortgage (formerly known as a home equity conversion mortgage/HECM) allows homeowners to unlock the equity in their home and receive cash or a line of credit while allowing the homeowners to retain ownership and stay in their home without having to make any monthly mortgage payments. Property taxes and home insurance are still required to be paid. Homeowners are also required to maintain the home as well as pay any HOA fees.

The cash that you receive from the reverse mortgage can be used for any purpose you desire since the cash is essentially a loan that is being taken out against the home. Borrowers have used the cash for purposes such as health expenses, senior care, pay off other debt, vacation, home improvement, vacation, daily living expenses or anything else that borrowers can imagine.

• Age 62 or Older - Lenders will allow borrowers 61 1/2 to start the process but the loan can't close until the borrower is 62
• Primary Residence - The property must be a primary residence, not an investment property
• Qualified Property Type - The property must be a HUD qualified property type, which includes single family homes, townhomes, HUD-approved condominiums, HUD-approved manufactured homes
• Existing Equity - To borrower against the equity in a home, borrowers must have equity. The more equity in the home, the more a borrower will be able to borrow. There is a complex formula that calculates how much one can borrow, but generally, borrowers need to have owe no more than half of their property value to make it worthwhile to obtain a reverse mortgage.
• Counseling - HUD requires borrowers to complete an informational counseling session about reverse mortgages.

By law, borrowers have 3 calendar days to cancel a reverse mortgage. The three day right of rescission should be explained to you at your closing. In almost all cases, the right to cancel does not apply to HECM Purchase Loans.

HUD HECM