What You Should Know About FHA Reverse Mortgage Insurance

Reverse mortgages have quickly become popular with seniors across the country as a way to increase retirement funds without having to pay back the funds until their home is sold. Based on the equity of the home, a reverse mortgage provides upfront cash that can be used for anything the homeowner wants. After the home is sold the lender is paid the proceeds up to the total loan amount.

Most of the reverse mortgages are backed by the US Department of Housing and Urban Development (HUD). HUD backs these reverse mortgages that are provided by approved lenders. If the reverse mortgage is not repaid with the amount of the sale of the home, HUD will pay the remainder of the balance due to the lender, and at no time is the debt made payable by the estate or heirs.

The power to back this type of mortgage is through the Federal Housing Administration (FHA). FHA reverse mortgage insurance allows HUD to provide this backing for reverse mortgages for seniors. The advantage is that the FHA insurance allows HUD to help its lenders provide lower cost reverse mortgage loans than other, private loan products. On the other hand, the FHA also sets the limits for the loan amount of a reverse mortgage based on its own loan caps for the area.

FHA reverse mortgage insurance is paid for by consumers who use HUD reverse mortgage loan programs. Two percent of the value of the home is paid up front for FHA reverse mortgage insurance. Then, through the balance of the loan, an additional half percent of the loan balance is paid yearly for the FHA reverse mortgage insurance.

However, many consumers do not see the impact of these costs. The FHA reverse mortgage insurance is often covered by the loan itself. The lender adds the amount of the insurance, as well as any closing costs and fees, to the balance of the loan amount. These additional loan costs are taken into account with the loan amount.

Having FHA insurance helps give the homeowner and the lender peace of mind in knowing that any loan is secured and backed by the government.