A Reverse Mortgage Can Help Retirees
The Home Equity Conversion Mortgage from FHA is a Safe Choice
Mar 4, 2009
Taking out a reverse mortgage can help retirees with their financial situation, particularly if their retirement nest egg has taken a hit. One important issue with the reverse mortgage is that you must consider where you should get your reverse mortgage from. There are a lot of scams out there and you don't want to fall victim to one of them.
General Information about Reverse MortgagesA reverse mortgage is a loan against the equity you have in your home. You do not have to pay back a reverse mortgage as long as you live in your home. The value you have in your home essentially pays you. This can be an important source of funds when the value of your retirement nest egg is down and you would like to skip your required minimum distribution in 2009.
A Safe Choice for a Reverse Mortgage LoanThe Federal Housing Administration (FHA) developed one of the first reverse mortgage plans, the Home Equity Conversion Mortgage or HECM. It is a safe plan for retirees to use to withdraw equity from their homes for a variety of reasons. In the past, reverse mortgages were used to supplement social security income, make home improvements, or pay medical expenses.
In today's economy, retirees can use a safe reverse mortgage plan, like the HECM, to supplement an ever-shrinking retirement nest egg. Instead of withdrawing funds from a dwindling 401(k) or IRA and having to withdraw money from securities selling at a loss that could go up in the future, retirees could skip their 2009 required minimum distribution and, instead, use proceeds from a reverse mortgage loan for their expenses.
In December 2008, Congress passed a law allowing retirees to skip their 2009 required minimum distribution due to the market downturn.
Qualifications for a FHA HECM
In order to qualify for a FHA reverse mortgage, you have to be at least 62 years old. You have to either own your home outright or you have to be able to pay it off at closing with proceeds from the reverse mortgage. The home must be your primary residence.
Your home has to be a single-family residence. It can also be a 1-4 family unit as long as one unit is occupied by the homeowner.
Organizations that Refer You to a Lender
There are a number of scams associated with reverse mortgages. There are organizations, for example, that offer to refer you to FHA-approved lenders of reverse mortgage for a fee. Do not use these organizations for this service! FHA provides this service for free. You can go to the HUD website or to AARP to find FHA-approved lenders.
