When you think about an FHA Loan, home equity or retirement might not be your first two thoughts that come to mind. That’s because FHA loans are generally described as government-back loans for first-time buyers.
The FHA structure is much more flexible than that though.
In fact, if you’re planning for retirement and you want to tap into your home’s equity, there is the FHA Home Equity Conversion Mortgage (HECM)*, which is designed specifically for retirees. There are some requirements to keep in mind, however, including age eligibility.
Here’s how one scenario under the HECM can play out.
A retiree may decide to sell his or her home to either move closer to family members or because the current home does not fit with their new lifestyle needs.
Under the HECM, they can take the return on their home sale and make it work for them. That is because when you apply a portion of it toward a down payment, you will avoid a monthly mortgage payment. This produces several benefits: It’ll increase your liquidity, lower the risk of putting all your proceeds into the market and allow you to place your hard-earned money into savings or an investment account to plan for your future as a retiree.
Here are some more details about a HECM:
- This loan is safe, secure and backed by the government as it is an FHA Loan.
- Purchasing a home through a HECM does not mean you’re signing over the title or equity. It works just like any other loan. The difference is the balance owed on the home increases slightly each month since it does not require a mortgage payment.
- Because HECM is a non-recourse loan all associated assets of the estates are protected, lessening any burden on the property’s heirs. This is a form of asset protection, especially if there’s an economic downturn that impacts the home’s value.
If you’re at an age where you’re thinking about retirement, a HECM could be an ideal fit. Imagine having no monthly mortgage payment, making the most out of your assets and protecting your children’s future. All of that is possible with this loan. In addition, a HECM will not affect property tax, homeowner’s insurance, Social Security or Medicare.
You can read more details about a HECM and other loans here: https://curtismangus.com/types-of-loans/
*(1) at the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds; (2) charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees; (3) the loan balance grows over time and interest is charged on the outstanding balance; (4) the borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home; and (5) interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment.