FHA Insurance Protections
Reverse Mortgages, also known as Home Equity Conversion Mortgages (HECM), benefit from protections provided by FHA insurance.
Reverse Mortgage FHA Insurance Protections
FHA reverse mortgages, Home Equity Conversion Mortgages (HECM), benefit from several reverse mortgage FHA protections that are part of the FHA (Federal Housing Administration) insurance. The FHA insurance provides the following protections and peace of mind to the borrower and their children:
- The borrowers will never owe more than the home’s fair market value.
A reverse mortgage is considered a non-recourse loan. When the last borrower dies or leaves the home, the reverse mortgage loan becomes due and payable in full. In most cases, the home is sold; however, if the heirs decide to retain the home, they will either refinance or pay the loan balance in full. If the home is sold and the proceeds don’t cover the full payoff, or if the refinance appraised value is lower than the original balance, FHA insurance pays the difference to the lender. That’s why a reverse mortgage is called a non-recourse loan: there is no personal liability for the owner or the heirs.
If the lender ever goes into default, the payments are guaranteed to be made by FHA. Payments taken from the lender holding the reverse mortgage are guaranteed.
- If the loan balance grows higher than the home’s value, the lender cannot take title.
- FHA insurance ensures that you can live in your home as long as the basic loan obligations are met (insurance and property taxes, etc.).
Reverse Mortgage Protections For Spouses
- A surviving spouse is protected from having to vacate the home if the borrowing spouse passes on first or needs to live in assisted living.