What is the benefit of a federally insured reverse mortgage? Are all reverse mortgages federally insured? Am I required to insure my reverse mortgage?
A reverse mortgage that is federally insured is the safe way to guarantee that your heirs will not be responsible for any debt related to that loan. When you die or leave your residence, your reverse mortgage becomes due and payable. Generally, the house is placed up for sale and the proceeds of that sale repay the loan. In some cases, when the sale price was not high enough, the loan will have a remaining balance. This balance, if not insured, is payable by the estate. When you federally insure your reverse mortgage through FHA you do not have to worry about this problem. A FHA insurance policy will directly pay the mortgage lender any balance due should the sale of the home fail to cover the debt.
Are all reverse mortgages federally insured?
No. There are reverse mortgages on the market that are not federally insured. TO get a reverse mortgage that is federally insured you must apply for, and receive, the reverse mortgage through a FHA approved lender. If you want an insured mortgage you must confirm with the lender that they are, in fact, a FHA/HUD lender and are offering an insured mortgage. You will have to pay for the insurance policy, but it is a guaranteed protection for your estate.
Am I required to insure my reverse mortgage?
There are no laws or regulations that require a reverse mortgage transaction to be federally insured. While this option does offer many benefits, such as protection of the estate, the consumer can apply for a reverse mortgage that is not insured. When you apply for the mortgage you should specifically ask for an insured reverse mortgage if this is what you want.
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