• HUD's reverse-mortgage program allows owners to use equity from their homes as a source of income.old home image by pearlguy from Fotolia.com
  
  The U.S. Department of Housing and Urban Development (HUD) created the reverse-mortgage program, known as the Home Equity Conversion Mortgage (HECM), in 1989 to assist aging Americans. This loan program is administered by the Federal Housing Administration (FHA) through HUD. HECM provides eligible owners with a regular source of income obtained through lines of credit or fixed monthly amounts in exchange for the home's existing equity.
  
  

Age Requirements

• Owners must be at least 62 years old to be considered for HECM eligibility. These types of federal housing loan programs are used primarily to assist elderly Americans with their everyday living expenses, since retirement pensions and Social Security benefits may not cover them. As long as the owner is still residing in the home, HUD does not require loan repayment.
  
  

Ownership Requirements

• The borrower must be the property owner and must own the property as a principal residence. In other words, the property must not have been used as an investment property. Generally, the principal residence must be a single-family home or a condominium unit within a planned-unit development. Lenders usually do not provide reverse mortgages on mobile homes or cooperative housing units (co-ops).
  
  

Type of Ownership

• The borrower must own the property in full and have paid off the mortgage. However, HUD allows the property to be mortgaged if the balance is small, and the owner requests a cash advance to pay the entire remaining mortgage loan amount. Since the reverse-mortgage program doesn't require repayment of debt, the FHA-approved lender needs to ensure that it will recoup its principal loan amount plus any interest upon the sale of the home. If there is any remainder from the selling price, then the owner or owner's heirs will receive that amount. FHA will never lend an amount that exceeds the fair market value of the home.
  
  

Credit History

• Owners may not have any federal delinquencies, and their credit must not show any remaining debts. The reverse-mortgage loan amount becomes due immediately upon the owner's relocation into a new home. There are also no asset limitations mandated by HUD. Generally, the amount the homeowner may borrow depends on the owner's age, the appraised home value, and the current interest rate. Older owners with more valuable homes usually qualify for higher mortgage amounts. Since real estate and tax laws change frequently, seek competent advice from an accountant or state-specific licensed attorney.
  
  

Consumer Information Class

• The owner-borrower must participate in an HECM information session. HECM trains its counselors to discuss its reverse-mortgage programs with interested owners. Counselors will provide complete loan information, financial consequences of the loan, and the different alternatives that may be available to owners in need of immediate funds. Counselors will also review the terms of the mortgage obligations, including the types of payment plans available.