What Is an FHA Reverse Mortgage?

Federal Housing Administration (FHA) reverse mortgages allow homeowners to access cash from the equity they’ve built up in their property over the years. Those over the age of 62 with either a fully paid-off mortgage or very few payments left on the loan may qualify for an FHA Reverse loan. In essence, this program works like a traditional reverse mortgage, but exists through the U.S. Department of Housing and Urban Development (HUD) and is insured by the FHA.

How an FHA Reverse Mortgage Works

Receiving Payments: Once you qualify for an FHA reverse loan, you can tap into your equity and receive payments in a variety of ways: You can choose a lump sum payment, use the equity as a separate line of credit or receive monthly installments, as long as you still live in the home. Plus, it’s always possible to change the payment structure mid-way.

Paying Off the Loan: An FHA reverse mortgage gets paid off as follows: The homeowner secures a loan and the lender recovers their principal, plus interest, when the home is sold. Anything leftover after the sale of the home goes to the homeowner or survivors. Doing this through HUD will ensure that if the sales proceeds are not enough to pay off the debt, HUD will pay the lender the difference.

Older people requesting a FHA reverse loan can borrow a larger percentage of their home’s value. The ultimate size of the loan is determined not only by the age of the applicant, but the current interest rate and the value of the home. Of course, before committing to any loan, thoroughly research all of your options to be sure it’s right for you.