FHA Reverse Mortgage

Formed by US government in 1934, Federal Housing Administration or FHA was established to provide opportunities for advance home ownerships to all Americans.

The main function of FHA is insuring mortgages to cover losses of lender occurring through borrower defaults. Borrowers unqualified for mortgage but insured by FHA can receive any conventional mortgage from lenders.

The borrowers applying for FHA reserve mortgages receive reliability and assurance for a comfortable post retirement life as these are tax-free and even provide tax benefits while repayment. Thus it is building a growing demand in the senior community

Criteria for FHA reverse mortgage

A person applying for FHA reverse mortgage needs to be a retired senior citizen above the age of 62 years and should own a home having no or very low mortgage left on his home. The borrowers are not required to payoff the mortgage until they decide to sell their home or if the borrower or their spouse (whoever lives longer) passes away. FHA reverse mortgage program are government insured and are offered through banks and other lenders. The down payment for FHA reverse mortgage is very low, below 5% of the borrowed amount. The applying and processing charges along with the interest rates for FHA reverse mortgages are almost similar to conventional mortgages. However, the upfront charges associated with FHA reverse mortgage are very high. The borrower can choose the mode of payment of FHA reverse mortgage. It can be in lump sum, on a monthly basis or on line of credit. The main disadvantage is that the maximum price that can be obtained by applying for FHA reverse mortgage is very low around $210,000. Borrowers are also required to pay the premium of the insurance for the loan before disbursement, which is very high and is approximately 4% of the mortgage amount. Simultaneously, if the borrower is not able to spend the whole FHA reverse mortgage amount receive in a month then there is a slight reduction in the monthly payments of their post retirement benefits (SSI & Medicaid).

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