The Details: Specifics about the Process

The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which enables you to withdraw some of the equity in your home. You choose how you want to withdraw your funds: In a lump sum, a fixed monthly amount, as a line of credit, or a combination of all three.
You can also use a reverse mortgage to purchase a primary residence if you have cash on hand to pay the difference between the reverse mortgage loan proceeds and the sales price plus closing costs for the property you are purchasing.
Reverse mortgage counselors are trained to discuss program eligibility requirements, financial implications and alternatives to obtaining a reverse mortgage. They will also discuss provisions for the mortgage becoming due and payable. Upon the completion of reverse mortgage counseling, you should be able to make an independent, informed decision of whether this product will meet your needs. We can provide you a list of approved counselors or you search online at https://entp.hud.gov/idapp/html/hecm_agency_look.cfm Also, you can use a reverse Calculator to help you see if you qualify. If you meet the eligibility criteria, Contact Us at (253) 381-8312 or toll free at 1-800-583-7200 to begin the reverse mortgage process.

Borrower Requirements

You must:

Be 62 years of age or older
Own the property outright or have a small mortgage balance
Occupy the property as your principal residence
Not be delinquent on any federal debt
Obtain consumer counseling given by an approved counselor

Mortgage Amount Based On

Age of the youngest borrower
Current interest rates
Lesser of appraised value or the HECM FHA mortgage limit

Financial Requirements

No income or credit qualifications are required of the borrower
Cannot be in an active bankruptcy proceeding: Must be discharged or dismissed
Closing costs may be financed in the mortgage

Property Requirements

The following eligible property types must meet all FHA property standards and flood requirements:

Single family home or 1-4 unit home with one unit occupied by the borrower (This includes duplex, triplex, & four-plex)
HUD-approved condominium
Manufactured home that meets FHA requirements

How the Program Works

If you are a homeowner age 62 or older and have paid off your mortgage or have a small enough mortgage balance remaining, and are currently living in the home, you are eligible to participate in FHA's reverse mortgage program. The program allows you to borrow against the equity in your home. You can select from five payment plans:

Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
Term - equal monthly payments for a fixed period of months selected.
Line of Credit - unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
Modified Tenure - combination of line of credit plus scheduled monthly payments for as long as you remain in the home.
Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

You can change your payment options at any time for a small fee, currently $20.

Unlike ordinary home equity loans, a FHA reverse mortgage does not require repayment as long as the home is your principal residence. Lenders recover their principal, plus interest and costs, when the home is sold. Any remaining amount goes to you or your heirs.

When the home is sold, if the proceeds are insufficient to pay the amount owed, FHA will pay the lender the amount of the shortfall. FHA collects an insurance premium from all borrowers to provide this coverage.

The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA's HECM mortgage limit, whichever is less. Generally, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow. If there is more than one owner, the age of the youngest owner is used to determine the amount you can borrow. For an estimate of reverse mortgage cash benefits based on your age, home value and current interest rate, contact us.

There are no asset or income limitations in order for you to be eligible for a reverse mortgage. In addition, there is no limit on the value of homes qualifying for a reverse mortgage. The value of your home will be determined by an appraisal. However, the amount that you may borrow is derived from the lower of the appraised value or the FHA HECM mortgage limit. You are charged an upfront mortgage insurance premium of 2 percent of the maximum claim amount that may be borrowed plus a 0.5 percent annual premium.

Costs of a Reverse Mortgage
You can pay for most of the costs of a reverse mortgage by having them paid from the proceeds of your loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.
The reverse mortgage loan includes several fees, including an origination fee, closing costs, mortgage insurance premium, interest and servicing fees. Since the costs can be significant, it is wise to carefully consider how long you expect to stay in your home.

Origination Fee
You will pay an origination fee to compensate the loan origination company for processing your reverse mortgage loan. The loan originator can charge an origination fee up to $2,500 if your home is valued at less than $125,000. If your home is valued at more than $125,000 originators may charge 2% of the first $200,000 of your home's value plus 1% of the amount over $200,000. FHA reverse mortgage origination fees are capped at $6,000.

Closing Costs
Closing costs from third parties can include an appraisal, credit report, title insurance, inspections, recording fees, escrow/closing charge, and other fees.

Mortgage Insurance Premium (MIP)
You will incur a cost for HECM insurance. You can finance the mortgage insurance premium (MIP) as part of your loan. You will be charged an upfront MIP at closing which will be 2% of the lesser of your home's value or the FHA HECM/reverse mortgage lending limit for your area. You will also be charged a monthly MIP that equals 0.5% of the mortgage balance.

The FHA reverse mortgage insurance guarantees that you will receive expected loan advances and that you will not have to repay the loan for as long as you live in your home and honor the terms of the loan agreement. The insurance also guarantees that, if you or your heirs sell your home to repay the loan, the total debt can never be greater than the value of your home. In the event a family member wants to keep the property, full payment of the loan balance is required.

Servicing Fee
Lenders or their agents provide servicing throughout the life of the reverse mortgage. Servicing includes sending you account statements, disbursing loan proceeds and making certain that you keep up with loan requirements such as paying taxes and insurance. Reverse mortgage lenders may charge a monthly servicing fee of $25.00 to $35.00. At loan origination, lenders set aside the servicing fee and deduct the fee from your available funds. Each month the monthly servicing fee is added to your loan balance.

Interest Rate
Borrowers can choose an adjustable interest rate or a fixed rate. If you choose an adjustable interest rate, you may choose to have the interest rate adjust monthly or annually. Lenders may not adjust annually adjusted reverse mortgages by more than 2 percentage points per year and not by more than 5 total percentage points over the life of the loan. FHA does not require interest rate caps on loans adjusted monthly, although most lenders will cap lifetime increases to no more than 10 percentage points over the start rate.

Repaying a Reverse Mortgage
A reverse mortgage loan must be repaid in full when the last borrower dies or sells the home. The loan also comes due and payable if:

You do not pay property taxes or hazard insurance or other obligations that can become a lien on the property.
The home is no longer the principal residence of at least one borrower.
You, or the last borrower, fail to live in the home for 12 months in a row. An example of this situation would be if the last borrower were to have a 12-month or longer stay in a nursing home.
You allow the property to deteriorate and do not make necessary repairs.