These past few months, the news has been filled with a number of 40th Anniversary events remembering a long ago summer filled with moon landings and historic rock festivals. Today, for those people who remember Woodstock and Apollo 11 firsthand and are now approaching their ‘golden years’, there is good news about new housing opportunities to meet their changing housing needs. A new Federal Housing Administration (FHA) Reverse Mortgage program can now assist senior homeowners who wish to relocate or move without selling their existing home first.

A reverse mortgage is a special type of home loan that allows homeowners to convert into cash a portion of the equity in their homes that has been built up over years. Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower no longer uses the home as the principal residence.

Today, this new federally – insured FHA reverse mortgage program - the Home Equity Conversion Mortgage (HECM) for Purchase program - offers seniors new approaches to utilize the equity they’ve built up in their homes. The FHA developed this program because many seniors were selling their homes and moving buying smaller or more affordable homes and then taking out reverse mortgages on the new properties. This required seniors to pay closing costs twice - first on the real estate closing and a mortgage if they needed one to make the purchase and then again when they switched to a reverse mortgage. The new HECM for Purchase program allows seniors to buy a home directly with a reverse mortgage which means they’ll pay closing costs only once - so the sale of an existing home is no longer necessary.

The new HECM program allows using a reverse mortgage to buy a single - family home or other multi – family residence (such as a townhome or condominium) and enable homebuyers to convert some of the equity in their existing home to cash. Homebuyers never have to make a single payment and can instead collect monthly payments out of their equity on a tax - free basis as long as the home serves as their principal residence. If they did not sell their previous home, they could make additional income out of renting that property.

This new plan allows homebuyers to take the money either in monthly payments, as a lump sum, a combination of the two or even in a line of credit that can be accessed whenever cash is needed. In addition, this year seniors can access up to $625,500 - up from $417,000 last year.

Eligible homes can be one- to four- units, a condominium approved by the U.S. Department of Housing and Urban Development (HUD) or a manufactured home that meets FHA requirements. Homebuyers must agree to pay their taxes and make any necessary home repairs. No credit check or income verification is required.

To qualify for the program's reverse mortgage, a senior, age 62 or older, must

* Agree to live in the house as a primary residence.

* Own the home outright or have enough equity to pay off any existing mortgages and equity lines with the proceeds from the reverse mortgage. Those with more equity may be able to access even more cash.

* Not be delinquent on any federal debt.

* Participate in a consumer information session given by an HUD - approved counseling agency or HECM counselor.

Typical reverse mortgages range from about a third to little over half of a home’s equity. Under the new guidelines, homeowners can take out a reverse mortgage for as little as $10,000. The amount a homeowner can borrow will depend on age, current interest rates and the appraised value of the home or FHA mortgage limits for your area - whichever is less. The factors will affect the amount that can be borrowed are the value of the homeowner’s equity, the homeowner’s age and current interest rates.

An additional benefit to the For Purchase program is that homeowners can't outlive the loan because the owner can never owe more than the value of the home at the time the home is sold. Then, the owner or the owner’s estate will repay the cash received from the reverse mortgage plus interest and other fees to the lender. Any remaining equity belongs to the homeowner or his or her heirs.

These government-backed For Purchase reverse mortgages are ‘no – recourse’ loans, meaning if the borrower defaults, the lender's recovery is limited to the sale value of the house. For example, if real estate values have declined at the time the loan comes due, and the home no longer is worth as much as the amount loaned, the FHA pays the lender the amount of the shortfall.

HECM loans are available only through an FHA-approved lender. To find one or for further information, visit the FHA’s www.FHA.gov website and click on “FHA Reverse Mortgages for Seniors (HECMs)” at the bottom of the page.

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