What is a reverse mortgage?

A reverse mortgage is a special type of home loan that allows a homeowner to convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.
To be eligible for a HUD reverse mortgage, FHA requires that: the borrower is a homeowner, 62 years of age or older; own your home outright; or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and you must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. The counseling service is free of charge and available locally (even by phone). Additionally, there are NO credit, NO income and NO health requirements.
Proceeds received from a reverse mortgage are loan advances and not taxable income. For your specific situation, we recommend that you consult your tax advisor. Money from a reverse mortgage is not considered income, nor does it affect Social Security or Medicare. Homeowners on SSI or Medicaid should consult the agency for pertinent rules. Your home must be a single-family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. The home must be in reasonable condition, and must meet HUD minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. 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 mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, and the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment." You do not need to repay the loan as long as you or one of the borrowers (ex. spouse) continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value. When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs. For other questions concerning a reverse mortgage contact your qualified reverse mortgage lender.