The HUD reverse mortgage was first introduced by the Department of Housing and Urban Development and is insured by the Federal Housing Administration (FHA) and is often referred to as a Home Equity Conversion Mortgage or HECM.
This type of mortgage has been around since the 1960s but few seniors elected to use what was currently on offer. Many seniors feared that they could loose their homes or risked not receiving the money they were entitled to because the lender went broke or the loan payments they received might exceed the value of the equity in their home.
With many seniors facing inadequate funds for their retirement years, the government looked at this type of loan and realized its potential to afford many seniors a more financially secure retirement. In response it set up a program that was insured by the government: the borrower is guaranteed to receive all the money they're entitled to no matter what.
A HUD reverse mortgage allows seniors, to use the equity in their home to raise funds. A lender agrees to give the borrower a specified amount and that the amount plus interest is payable only when the homeowner no longer lives in the home as their principal residence, sells it or dies. This means that there are no monthly repayments and the borrower can remain living in their home for the rest of their lives without worrying about paying back the loan.
In order to be eligible, the homeowner(s) must be 62 or over, live a single family dwelling, two-to-four unit, townhouse or FHA-approved condominium. There must be no, or very little, debt (mortgage) remaining on the home. Unlike a traditional mortgage or home equity loan, there is no need to provide proof of income or to have health checks.
The amount you receive with a HECM depends of the value of your home, its location, current interest rate and your age. It is also capped. At time of writing the maximum amount that can be borrowed varies between $200,160 and $362,790 depending on your home's location.
A HUD differs from a Home Keeper inasmuch as a Home Keeper is a Fannie Mae program. A Fannie Mae program allows for more flexibility on types of home that are eligible and can pay out more for single homeowners. It's also the only program offering a reverse mortgage for home purchase allowing a borrower to purchase a retirement home with no monthly payments.
The third type is a jumbo reverse mortgage. There are a number of these and they are set up and administered by private companies. They are more flexible in what they offer, the biggest advantage being that there is no limit on the maximum amount that can be borrowed, which makes them better suited to those who live in homes valued at over $500,000. Unlike HECM and Fannie Mae, not all jumbo programs are available nationwide.
Before you select any of the 3 programs, you should talk to your local broker about which would best suit your requirements - third party counseling is also a requirement. But, chances are, a HUD reverse mortgage will be your best option.
Follow the links for more advice on a HUD reverse mortgage to decide if this type of reverse mortgage loan is the best reverse mortgage for you.
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