If you are considering taking out a reverse mortgage home loan, there are three different types to consider. Well give you the details so you can better decide which one is right for you.
Home Equity Conversion Mortgage (HECM)
The most popular of the three reverse mortgage types is the Home Equity Conversion Mortgage (HECM). This is considered the most commonly issued loan of this type, according to the HUD. One reason: it often comes with lower rates and lesser fees than those that would be offered by private lenders. In addition, the FHA backs these loans, making them a more lucrative option for the banks that issue them.
- You have to be at least 62 years old.
- You have equity on your home.
- Your home must meet certain building requirements.
- You must have undergone reverse mortgage counseling.
- There are no income or credit requirements.
Since these loans are FHA backed, they do have some conditions that must be met. These include:
- There are loan limits, and the loan cant exceed 100% of the homes value.
- A Mortgage Insurance Premium (MIP) is required for all HECM reverse equity loans.
Reverse Annuity and Home Equity Conversion Mortgages
The other option that you have is with reverse annuity and home equity conversion mortgages. A reverse annuity mortgage comprises an agreement between the lender and the homeowner, where the homeowner borrows against existing equity in the home. The money borrowed has to be repaid only when the home is refinanced or is sold. While reverse annuity mortgages do have three different classes, the most common is the Home Equity Conversion Mortgages (HECM) because its backed by the FHA.
Private Company Reverse Mortgage
It is possible to get a non-FHA backed loan of this type, commonly referred to as a private company reverse mortgage. But these types of mortgages are typically based upon income and credit score as well as existing home equity, since they are privately backed, and can often come with higher interest rates and more fees because they are offered by private lenders.
If you are considering a reverse mortgage loan, make sure you take the time to research all of your options. You will likely arrive at the conclusion that an HECM loan is the best suited for your needs, namely due to how lucrative they are in comparison to your other borrowing options.
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