If you are senior who is thinking about getting an FHA reverse mortgage, you are required to attend a counseling session with a HUD-approved counselor prior to getting a reverse mortgage.

The counseling session can be done at your home, in a group setting, or even over the phone and usually lasts between an hour and two hours.

Some of the questions that you can expect the reverse mortgage counselor to answer:

• What is a reverse mortgage?
• What are the eligibility requirements for a reverse mortgage?
• How does a reverse mortgage impact your equity in your home?
• What are the fees of a reverse mortgage?
• What are the options in how the funds from a reverse mortgage can be paid to you?
• How will the reverse mortgage be repaid?
• What is the impact of a reverse mortgage on your social security benefits?
• What is the impact of a reverse mortgage on your heirs?

You should also expect the counselor to provide you with a reverse mortgage calculator of some sort to help you determine the cost of your reverse mortgage loan.

I haven’t seen a situation where a senior came away from a reverse mortgage counseling session with more questions than they went in with — which means by and large, it appears to be working!  These HUD-approved counselors seem to be a good tool for seniors to get their questions answered from an independent third party for a reasonable fee (the counseling session typically costs about $125).

According to an AARP survey found on the HUD.gov website, the majority of mid-life and older Americans want to remain living independently in their own homes and communities for as long as possible.

Nursing home?  People don’t want to live in a nursing home, they want to stay in their own home!

The survey found that:

• 70% of seniors who are able to make changes to their homes have made at least one modification to make it easier for them to get around
• 66% of seniors who made home modifications believe those improvements will allow them to live in their homes longer than they would have been able otherwise, most for another ten years or more
• The reasons most often cited by seniors who participated in the survey for not making home improvements were the inability to make the changes themselves (37%) and not being able to afford the modifications (37%)

The FHA HECM reverse program can turn the built-up wealth in your home to cash without having to move or repay a loan each month.  Financing home repairs or improvements is one of the many good uses for funds received from a HECM.

Top 10 Home Improvements for Seniors:

1. Levered doorknobs.
2. Grab bars in bathrooms.
3. Levered faucets in kitchen sinks.
4. Handrails on both sides of stairwells and on front and rear steps.
5. Grab bars in showers; removal of any door threshold.
6. Movable shower heads for those who must sit.
7. Portable shower seats.
8. A bathroom with a bath/shower as well as a bedroom on the first floor.
9. Widened doors to accommodate wheelchairs.
10. Ramps for those using walkers and wheelchairs.

The above mentioned survey was part of a series of surveys done by AARP on senior housing studies. Based on telephone interviews of 2,000 persons aged 45 and over, it examines the opinions and behavior of mid-life and older Americans regarding their current and future housing situations.

Question: Is it possible to buy a home using a FHA Reverse Mortgage?

Answer: Yes, starting January 1, 2009

In response to the new FHA HECM Reverse Mortgage For Purchase program, HUD has compiled a list of 25 frequently asked questions.  Here are our favorite 14 questions and answers from the 25 HUD has on their website:

Home Equity Conversion Mortgage for Purchase
Frequently Asked Questions

What is HECM for Purchase?
HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.

What is the purpose of the program?
The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing.  The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.

What activities can be performed prior to January 1, 2009?
Lenders may take application but they may not process or perform services that would result in a charge to a prospective mortgagor.

Can lenders refer clients, who are interested in a HECM for purchase transaction, to a HUD-approved housing counseling agency before January 1, 2009?
No. Counseling on HECM for purchase transactions will become available January 1, 2009.  Counselors need time to adjust to the new provisions

What property types are eligible?
Existing one-to-four unit properties where construction has been completed and the property is habitable.  See ML 2007-06

Can a HECM for purchase be used to satisfy outstanding payment obligations associated with a land contract?
Yes, if the property will be used as collateral for the HECM and the mortgage will be held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having the remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.

Can a lender take application on a property that is under construction and not habitable?
No.  The lender may only take application once the Certificate of Occupancy or its equivalent has been issued.

Are gifts an acceptable source of funding?
No.  Prospective mortgagors may only use their own money or money obtained from the sale of assets.  FHA prohibits the use of loan discount points, interest rate buy downs, closing cost assistance, builder incentives, gifts or personal property given by the seller or any other party.

What would be an “allowable FHA funding source” for gap financing of the equity portion?
A withdrawal from the mortgagor’s savings or retirement account would be an acceptable funding source.

Can prospective mortgagors apply credit card cash advances towards the required monetary investment or closing costs?
No.  This would be a violation of 24 Code of Federal Regulations 206.32(a), which requires all outstanding obligations connected to the HECM transaction, purchase or otherwise, to be satisfied prior to or on the date of closing.

Are seller concessions allowed?
No.  Seller concessions are applicable to forward mortgages only.

Can prospective mortgagors obtain a secured or non-secured loan from another asset (i.e., car, home equity line of credit, or investment property or second home) to satisfy the monetary investment or closing costs?
No. Consistent with existing policy, bridge loans and other interim financing methods associated with HECM transactions are prohibited, unless the unpaid or outstanding obligation can be satisfied prior to or on the day of closing.

Under what conditions may a senior cancel the purchase transaction?
The senior may decide to cancel the purchase transaction at any time prior to the date of closing.  If the senior decides to cancel the transaction, he/she must notify all parties in writing.  Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.

Can the HECM mortgage participate in a rent back/leaseback agreement with the seller?
No.  When purchasing a new principal residence, the HECM mortgagor has 60 days to occupy the home.  Unlike a forward mortgage, there is an increased risk to FHA when the home is not occupied by the HECM mortgagor.  Prior to closing, the HECM mortgagor and seller should agree to a date for physical occupancy of the property and the lender should confirm occupancy prior to their submission of the case binder to the local HOC for endorsement.

If you are a senior who is currently looking to purchase a house, it is entirely possible that the new FHA HECM for Purchase reverse mortgage program is a viable option!

See all 25 FAQ’s on HUD’s Website.

See HUD’s official Mortgagee Letter about the FHA HECM Purchase program.

A common question we are asked is “how old do you have to be in order to get an FHA-insured reverse mortgage?”

The simple answer is… 62.

But wait, there is more to the story.

The are strict age requirements to the FHA/HECM (Home Equity Conversion Mortgage) program and the age requirements state that each borrower be at least 62 years of age.

It seems that quite often, we speak with people where one person is over age 62, but their spouse is not.  What happens in cases where both people are not over age 62 — does this mean that they can not participate in the FHA/HECM program?

It depends on what choices they make.

Possible Choice #1

Since one of the seniors is not yet over the age of 62, this means that the couple will not qualify for the reverse mortgage program and need to wait until both people are over age 62.

Possible Choice #2

Since one of the seniors is not yet over the age of 62, the spouse who is taken off title, which allows the spouse who is over 62 to qualify alone for the FHA/HECM program.

Ramifications Depending On Your Choice

If you choose #1, it is simple.

If you choose #2, be aware of the following possible scenarios:

Assume for a moment that the younger spouse who was taken off title is the first spouse to pass away. Since this younger spouse wasn’t an owner of the property, their death will not impact the program that is in place and the surviving spouse will continue living in the property with no changes to their reverse mortgage.

Now, let’s pretend that the older spouse who was on title and participating in the FHA/HECM program is the first spouse to pass away. If this were to happen, the loan then becomes due and in this case, the loan would need to be repaid in full.

So, in order to remedy this situation – the surviving spouse would need to do one of the following:

1. Sell the home and move out
2. Pay off the loan balance with savings or a regular “forward mortgage”
3. Obtain a reverse mortgage (assuming that they are now over the age of 62 and meet the criteria)

If you are thinking about a FHA-insured reverse mortgage and either you or your spouse is not yet over the age of 62, this is only one of the many choices you will be faced with and need to be aware what impact your choices will have.

The FHA/HECM program is helping many seniors enjoy retirement  – but it can also be a burden in the future if you don’t plan according to the choices you make!