August 12, 2024
Reverse mortgages have become increasingly popular as a retirement financial planning tool.
They give homeowners a way to access their home equity without having to make monthly payments, and that equity can come as a lump sum of cash or installment payments, or via a line of credit.
Some disbursement options may be open to all applicants, others may depend on circumstnaces.
When looking into reverse mortgage options, you will come across two main types: FHA reverse mortgages, also known as Home Equity Conversion Mortgages, and non-FHA reverse mortgage options offered by conventional lenders.
The FHA HECM is a reverse mortgage with a government guarantee. That government backing provides the lender with some protection in the event of loan default, making it easier for the lender to approve the loan.
Reverse mortgages guaranteed by the FHA feature predictable, standardized terms and conditions.
Although some rules may vary depending on the lender, the basic loan program is standardized, which is an essential feature of these loans.
One such standard feature is that all FHA HECM loans require the borrower to undergo reverse mortgage counseling as a condition of loan approval.
Additionally, an FHA HECM requires a new appraisal. This is done so the loan represents a portion of the current value of the property. The Appraisal helps keep the loan amount in line with the property’s worth.
FHA HECM loans are typically established based on that appraisal and the FHA loan limit for reverse mortgages in that county.
Non-FHA reverse mortgages are also offered by residential real estate lenders.
These loans do not come with a government guarantee, but they may offer higher loan limits depending on the lender. They can be a viable option for refinancing high-value properties in expensive housing markets.
Some non-FHA reverse mortgages have different credit and income requirements, may not require mortgage insurance, and may offer more flexible loan terms depending on the market and other variables.
Depending on the housing market, these conventional loans may be more challenging to find than an FHA HECM loan, and they might not offer the same consumer-friendly terms and conditions.
The higher loan amounts associated with non-FHA reverse mortgages come with greater risk for the lender, which may influence the loan officer’s decision to approve the loan.
Although you may technically qualify for higher amounts, it’s important to compare the terms and conditions between FHA and non-FHA options to determine the best choice for you.
Deciding between an HECM and a non-FHA reverse mortgage typically depends on individual circumstances and financial priorities. Get some sound advice from a financial advisor or reverse mortgage counselr who can give insights and answer your questions about each option.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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