As housing market conditions slowly improve, many are considering mortgage options such as refinance loans and programs that let borrowers turn the equity in their homes into cash.
For those interested in FHA loans the options include cash-out refinancing but there is also an option for seniors who own their homes outright or are very close to doing so.
FHA Reverse Mortgages
The FHA reverse mortgage is an option for these qualifying applicants that lets the borrower take cash at closing time on a loan that is not due until the borrower dies, sells the home, or stops using it as the primary residence.
There are no mortgage payments with an FHA reverse mortgage, but the borrower is obligated to stay current on property taxes, homeowner association dues, and other regular expenses as described in the loan agreement.
What’s Different About FHA Reverse Mortgages
FHA reverse mortgages are only for those 62 or older. Younger borrowers can’t qualify for a reverse mortgage, they have to apply for an FHA cash-out refinance loan to pull equity from the home in cash.
And the structure of the FHA reverse mortgage program differs from the cash-out refinance option in important ways. One difference? Mortgage counseling is a requirement for reverse mortgages and is not for FHA cash-out refi loans.
This is typically due to the fact that reverse mortgages have some unique requirements that borrowers need full informed consent to before they commit to the mortgage.
One of those requirements is the previously mentioned property tax issue.
Reverse mortgage borrowers who fall behind on property taxes are subject to having the reverse mortgage declared due in full as a result and that’s a situation some might be otherwise taken surprise by without the reverse mortgage counseling.
Qualifying Homes
A reverse mortgage is a home equity-type loan, and that means you’ll need to spend some time planning and saving for the loan to make the most of it. Paying your closing costs up front in cash (such as for the FHA upfront mortgage insurance premium) can help you get more out of your loan.