HUD reverse mortgages amount for about 90% of all reverse mortgages being originated in the United States. This type of reverse mortgage has become so popular because it protects the two parties in the transaction. It’s a win-win situation for everyone.
First, the homeowner benefits because the FHA (the Federal Housing Administration,) an agency within HUD (U.S. Department of Housing and Urban Development,) oversees this type of mortgages and set strict policies on how much a lender can charge and what kind of information the lender must disclose. Also, it audits the reverse mortgage lender wanting to be FHA certified to ensure that they are solid companies.
Additionally, it benefits the reverse home mortgage lender as it restricts the lender’s financial obligation. By doing so, it likewise benefits you as lenders may pass you a more beneficial deal.
How Does a HUD Reverse Mortgage Work
A HUD reverse mortgage is a mortgage designed for seniors over 62 years old. It’s a mortgage based on the equity in the house. In order to apply for a reverse mortgage, the borrower must have enough equity in the home.
A HUD reverse mortgage gives senior citizens the opportunity to savor their retirement age in a more at ease fashion as it provides tax-exempt “revenue” that does not have to be paid back for as long as the borrower remains residing in the home. Once the borrower leaves or dies, the home may be sold to compensate for the funds due to the Lender. Still, the borrower may never owe more funds than the home is valued at.
The HUD reverse mortgage is the basic kind of reverse mortgage and it is endorsed by the US HUD. Whenever a bank would like to offer HUD reverse mortgages, it needs to complete the credential process to do so. In order to conclude the documentation, lenders need to comply with a few hard prerequisites.
With a HUD reverse mortgage, the Government guarantees that it will pay the remainder of the balance due to the lender in case the home is sold for a lower amount that is owed to the lender. It also ensures that if you outlive the actual amortization tables, the HUD insurance will continue to make your monthly payments for as long as you live in the house (if that’s the method you have chosen to receive payments.)
Because of the backing of FHA, the reverse mortgage lender is able to offer you better terms because they know that their liability is limited to a set amount of money.
FHA may provide such a warranty as it counts with an insurance policy pool paid for by every reverse home mortgage borrowers. Each time somebody acquires a HUD reverse mortgage, 2 pct of the value of the home is committed in the pool. Additionally, a different one-half point is contributed annually into the pool.
You may be interested in knowing that these fees are already included in the cost of the loan and don’t represent an out-of-pocket expense for you. Usually, the only out-of-pocket expense is the cost of the appraisal.
The additional fees make this kind of mortgage a costlier mortgage than a conventional loan. Prior to you getting a reverse mortgage, you may like to entertain how long you project to live in the home. If you’re projecting on staying under five years, you might prefer to study another option. If you are not certain, speak to your reverse mortgage agent or advocate for advice.
Government Agencies Monitoring Reverse Mortgages
Most reverse mortgages are lent through private lending companies. However, most of these loans are insured by FHA. It may be a good idea to apply for a reverse mortgage ender certified to issue HUD reverse mortgages.
There are two main benefits for this. First, you get a better deal because the lender doesn’t risk as much in case of a loss since potential losses are covered by the insurance. Second, in order for a lender to be certified, it must be audited and it must comply with very tight regulations set by the Federal Government.
Always remember that although FHA doesn’t actually lend you the money, it sets strict policies that lenders must comply with. Lenders are continuously being audit to ensure that they adhere to these policies.
Among the guidelines set by FHA, there is one demanding that potential borrowers receive a free counseling session. In this session, the borrower can have any questions answered by a third party.
FHA Has as well set boundaries on how much funds may be borrowed by utilizing a reverse home mortgage. The sum changes depending upon the are of the country where you live on.
The HUD Reverse Mortgage Steps
As an increasing number of baby boomers reach the time in their lives to retire, they start searching for different ways to maintain their pre-retirement lifestyle. For many retirees, pension plan and social security payments are just not enough. Some of these seniors have turned to reverse mortgages to solve this problem.
Applying for a reverse mortgage is very simple. Once you know you qualify for a reverse mortgage, the rest of the process is very easy. A good reverse mortgage broker should be able to help throughout the mortgage process and answer any additional doubts you may have.
There are four main steps in the mortgage application process:
1. Get familiar with how reverse mortgages work. These mortgages are different than traditional ones. Read about how they work AND when they are a good choice for you.
2. Find a reverse mortgage lender who will guide you through the lending process. We recommend to lender who is FHA certified. Make sure the lender has a lot of experience in reverse mortgages.
3. Attend the required counseling. Federal regulations mandate that you get free counseling through an approved association such as AARP. In this counseling session, you can have all of your questions answered. If you don’t know how to set up this session, ask your broker.
4. Compile the needed documentation. This documentation is much less that if you were applying for a traditional mortgage because there is not need to prove income and your credit score is of no concern.
Even though getting a HUD reverse mortgage is an important financial decision, you may keep in mind that thousands of people do it every day. Just make sure you get a reverse mortgage broker you trust and who can guide you and educate you throughout the whole loan process.