What Is A Reverse Mortgage?
How does the HECM compare to other home loans?
To qualify for most loans, the lender checks your income to see how much you can afford to pay back each month. To distinguish from a reverse mortgage, all other mortgages shall be defined as “forward” mortgage. However, because a reverse mortgage does not require you to make monthly repayments you don’t need a minimum amount of income to qualify. You could have no income whatsoever, and still qualify for a reverse mortgage. Generally a home equity loan, a second mortgage, or home equity lines of credit also have strict requirements for credit worthiness. A reverse mortgage has no income or credit requirements, and instead of making monthly payments, the homeowner receives payments.
With most home loans, if you fail to make your monthly payments, you could lose your home. With a reverse mortgage you don’t have any monthly repayments to make, therefore, you can’t lose your home by failing to make them.
With a reverse mortgage the amount that can be borrowed is determined by an FHA formula that considers age, the current interest rate, the location and the appraised value of the home. As stated previously, with forward loans the homeowner is still required to make monthly payments, but with a reverse mortgage the loan is not due as long as the homeowner lives in the home. However, as a forward mortgage, the homeowner is still responsible for real estate taxes, homeowner’s insurance, utilities, and maintenance.
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