Take Out A HECM Reverse Home Equity Mortgage Loan
Taking out a reverse home mortgage loan can be easy. If you have existing equity on your home, the only thing you need to do is apply to a reverse home loan program. After this you are on your way to cashing into your equity.
There are only two types of reverse home mortgages that most seniors bother with – the federal-backed Home Equity Conversion Mortgage (HECM) and proprietary reverse equity mortgage programs funded by private lenders.
HECM reverse home loans are by far the most sought-after reverse equity mortgage program. Home Equity Conversion Mortgage (HECM) loans are invariably more affordable than those of private lenders. Additionally the FHA backs HECM reverse equity loans. These are the reasons that make this program so attractive.
To qualify for an HECM loan, you must meet the following qualifications:
Because the American Government backs them, Home Equity Conversion Mortgage (HECM) reverse equity loans have these distinct advantages:
- The FHA has loan limits for each county in the United States. Your loan will never reach 100% of your home value. In effect, your Home Equity Conversion Mortgage (HECM) loan amount is invariably lower at the end of the loan term, i.e., when the house is re-sold or refinanced. You can still have money to give your heirs after the house is sold.
- A Mortgage Insurance Premium (MIP) is required for all HECM reverse equity loans. This is equivalent to 2% of the loan amount during the first year. After this point it is lowered to 0.5% in succeeding years. The MIP allows the government to pay your lender in the event that the sales proceeds of your home are not enough to cover your loan.
Proprietary or private reverse mortgage programs on the other hand, have their own distinct advantages as well. Unlike Home Equity Conversion Mortgage (HECM) reverse mortgages, you are not required to undergo counseling from a reverse mortgage specialist or attend any seminars.
With proprietary loans you can get 100% of the equity on your home. If you need more money for your needs, private reverse mortgages are the way to go. Private reverse mortgages are very popular with seniors who own high-end homes, since they can get more equity for their money.
There are many private mortgage lenders on the market just as there are many reverse mortgage programs. The only challenge for seniors is to fully understand the pros and cons / benefits and disadvantages of each type of each program. Surprisingly, many seniors can be swayed on the basis of good press alone.
Remember if you are thinking of taking out a reverse mortgage loan, talk with a financial consultant first and also discuss it with your family. Take note, a reverse mortgage is just like any other loan – there are closing costs and fees that you need to pay besides the loan principal and interest rates.