The bulk of reverse mortgages done each year fall under a single government program run by the Department of Housing and Urban Development (HUD). These loans, known as a FHA reverse mortgage, are backed by the government to protect the lenders against a potential loss. Without this protection, it's likely that the availability of reverse mortgages would decrease dramatically, depriving many of this important wealth-planning tool.

Of course, since a FHA reverse mortgage is government backed, it comes with strict guidelines covering the various terms of the loan. Borrowers who cannot meet these guidelines must look elsewhere if they wish to secure a reverse mortgage.

Who Can Get a FHA Reverse Mortgage?
To be eligible for a FHA reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), a borrower must be at least 62 years old. If a couple is applying for a FHA reverse mortgage, both people must be at least 62 years. Aside from that, there are no other requirements that the average homeowner would have a hard time meeting.

Thankfully, FHA reverse mortgages do not require the borrower to have good credit. In fact, your credit score is irrelevant to the application process since the loan is based on an existing asset, not your credit history. This is a big advantage over many standard home equity lines of credit, which increasingly require at least a basic credit review prior to approval.

Naturally, to secure a reverse mortgage of any kind, you must own the home and live in it as your primary residence. You must also complete a 45-minute HECM counseling session that covers the basic mechanics, risks, and costs associated with a FHA reverse mortgage.

What is the Maximum FHA Reverse Mortgage Amount?
The maximum FHA reverse mortgage is the lesser of two amounts: the actual appraisal amount of the home or the FHA mortgage limit for a geographical area. Currently, the HECM maximum is $625,500, though it may actually be less in certain areas. It may be further reduced if closing costs are financed into the reverse mortgage instead of being paid out of pocket.

This does not mean that someone with a home worth more than the FHA reverse mortgage maximum could not use this program. Rather, the amount of money they can receive is limited to the maximum, even if the house is worth much more.

How Much Does a FHA Reverse Mortgage Cost?
Aside from the interest rate on a FHA reverse mortgage, which fluctuates with market conditions, there are a number of other costs to be aware of. It's these costs that can make a reverse mortgage less than a great deal, especially if a borrower only stays in their home for a short period of time after getting the loan.

One of the biggest costs a FHA reverse mortgage borrower will have to factor in is the origination fee. This is in essence, the commission that goes to the mortgage company for getting you the loan. The current FHA reverse mortgage guidelines set the origination fee at the greater of $2,500, or a blended rate of 2% of the first $200,000 plus 1% of everything over $200,000.

The FHA reverse mortgage program also collects 2% of the home's value upfront and .50% of the loan balance per year as an "insurance premium." This money is used by HUD to reimburse participating lenders if a sale ever yields less than the outstanding loan balance on a reverse mortgage.

In addition to these costs, there may be additional incidental expenses, such as notary fees, that a borrower will have to pay. This means that, when all is said and done, a reverse mortgage can easily cost a borrower close to 5% of the borrowed amount on the front-end.

How Do You Get a FHA Reverse Mortgage?
If you're interested in taking the next step in getting a reverse mortgage to increase your monthly cash flow, you'll want to begin a conversation with an approved FHA reverse mortgage lender. While all of the largest lenders (Wells Fargo, Financial Freedom, Bank of America/Countrywide) all fall into this category, you can also visit HUD's searchable directory of other approved lenders.