Role of the American Government and the Banks in Making Reverse Mortgages Affordable
Home Equity Conversion Mortgages or HECM reverse mortgages are unique since they are the only private sector reverse mortgages that are backed by the American government. In fact, HECM reverse mortgages are the only kind of reverse mortgage that are backed by the government in America.
Public Sector VS Private Sector in America
There is one major difference between a public sector loan and private sector loan in America. Public sector loans are offered by the American state and local government units. Private sector loans on the other hand are offered by private banks. You can use a private sector, bank-offered loan for any purpose, public sector loans however can only be used for doing home repairs and paying off property taxes.
HECM reverse mortgages are unique since they are offered by private banks and lenders. Although they are private bank loans, the American federal government backs them through the Federal Housing Authority (FHA) of the Department of Housing and Urban Development (HUD). The backing of the government makes HECM reverse mortgages in America invariably more affordable than other types of reverse mortgages. Because private banks offer them, you can use them for any purpose including home repairs and paying off property taxes.
Government-Backed Reverse Mortgage
What does it mean if a reverse mortgage is government-backed? Before we discuss the answer, we need to find out how a HECM bank lent reverse mortgage works.
The American government designed the HECM reverse mortgage program specifically for seniors that are at least 62 years old. This program was created to make retired life more affordable. To qualify, senior citizens must be the owner of a stand-alone house or any other type of dwelling recognized by the HUD program.
Unlike regular mortgages, you do not have to worry about regular monthly payments. In fact with reverse mortgage loans there are no monthly payments. HECM bank lent reverse mortgages are only repaid when the applicant is dead or permanently move out of his home. HECM reverse mortgages are non-recourse loans, meaning the loan can only be repaid with the sales proceeds of the house, when it is sold.
What the Banks in America Do
Before you can apply for a reverse mortgage loan, you must first undergo loan counseling by a HUD-approved counselor. It is only after counseling that you can apply for the loan with the HUD-approved banks and lenders.
The amount of money you can qualify for depends on your age, the market value of your home, and the specific loan program selected. In general, the folowing facts hold true in most reverse montages:
• The older the borrower is, the more money he or she can get.
• The greater the value of the home, the more cash can be received from the reverse mortgage loan.
What the American Government Does
If proceeds of the home’s sale are not enough to pay for your reverse mortgage loan, then HUD pays the remaining balance to the lender. Since, reverse mortgages are non-recourse, it cannot be passed on to the heirs of the borrower.
Reverse mortgages may seem like they are to good-to-be-true. Therefore before you take the plunge, find out if they are the best financing option for you. They have both pros and cons, all depending on the person.