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What Happens When FHA Reverse Mortgages End


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TERMINOLOGY

FHA reverse mortgages allow homeowners who meet specific criteria to receive a monthly income or lump sum payments that equal the equity in their home. The money is repaid when the homeowner dies or sells the home. But there are several items of interest that those applying for an FHA reverse mortgage should be aware of, particularly regarding what happens at the end of the mortgage.

Reverse Mortgages Defined

The Federal Housing Administration is part of the U.S. Department of Housing and Urban Development. It guarantees a variety of loans geared toward increasing home ownership in the United States. FHA reverse mortgages are technically called Home Equity Conversion Mortgages.

Here is how the FHA reverse mortgage program works. If you are age 62 or older, own your home outright or with a small amount of debt, live in the property and are not behind on any government loans, you can apply for the program. You must complete an information session with an FHA counselor. FHA reverse mortgages lend you money up to the value of the equity in your home. Equity is the difference between your home’s current market value and the money owed on it.

The End of the Mortgage

FHA reverse mortgages come to an end in one of three ways. You can elect to pay it back; you can sell your home and pay it off; or when you die, the home is sold and the loan is paid off. Unlike conventional loans, you don’t owe anything until you die or sell the home. As with conventional loans there are fees and interest expenses which must be paid and which typically are rolled into the amount you receive.

What Happens to Remaining Equity?

It is quite possible that at the end of an FHA reverse mortgage there will still be equity in a home. The home could have increased in value after you received the FHA reverse mortgage. The money paid to you might not be equal to the equity in your home at the time of death or sale of the home. In the case of remaining equity, it is returned to you if you sell the home or goes to your heirs upon your death.

What if You Owe More?

You will not owe more. FHA reverse mortgages cannot be for more than the current equity in your home. Additionally, if because of market conditions your home has decreased in value so that the proceeds of sale do not pay off the loan, the FHA pays the difference.

This payment is made through insurance proceeds from insurance that you have paid for. The insurance and the fees associated with closing the loan are rolled into the total loan amount offered you, which cannot exceed the total equity in your home at the time of closing.

When do You Have to Pay?

Even though you owe nothing on an FHA reverse mortgage, because it will be repaid by the sale of the home, it is possible that you will be required to repay the loan amount prior to death or sale. You will be required to repay if you don’t pay property taxes, fail to maintain insurance, don’t live in the home for 12 consecutive months, or fail t