This loan allows older borrowers to receive a monthly advance from their equity in a home with a low existing mortgage or that is free and clear. The program is intended to offer a source of monthly income for retired individuals who might otherwise be forced to sell their home because of lower retirement income levels. As previously noted, FHA does not make direct loans except under rare programs. Instead FHA provides default or loss insurance for loans made by qualified private lenders. That insurance is purchased by borrowers with each loan and comes in two formats.
Some loans require payment of both types, some only the annual premiums.
This premium is collected each month with the borrowers principal and interest payment and remitted to FHA by the lender. It is applicable on all loans including the loans with the One Time premium. All FHA loans are fully assumable by qualified borrowers. Individuals assuming an FHA loan must meet the same credit standards as the original borrower. When approved, a qualified assumptor takes over the monthly payments and responsibility for the remaining mortgage balance due.