January 14, 2016
The FHA single-family loan program includes reverse mortgages–a loan program where a borrower can apply for a loan that requires no monthly payments, offers cash back to the borrower, and is based on the value and equity in the home. If you are looking for a reverse mortgage, the FHA program might be just what you need. Here are some basic facts about the FHA reverse mortgage loan option:
FACT:
FHA reverse mortgages are known as Home Equity Conversion Mortgages or HECM for short. These two terms refer to the same thing when it comes to FHA reverse mortgages.
FACT:
FHA HECM loans are for borrowers aged 62 or older who either own their home outright or are very close to doing so. HECM loans are declared due when the borrower either dies or sells the home.
FACT:
FHA reverse mortgages or HECMs have an occupancy requirement the same as single family “forward” mortgages. The borrower is required to use the home as the primary residence for the duration of the HECM loan. Failure to meet the occupancy requirement can make the loan due and payable.
FACT:
Reverse mortgages feature cash back to the borrower, but the amount and duration of the payments may depend greatly on the kind of HECM loan terms you have–fixed interest rate, adjustable interest rate, etc.
FACT:
FHA HECM loans may require you to have an escrow account for property tax payments and other charges. The details for your escrow account may vary from lender to lender, so you will need to discuss this issue with the loan officer.
FACT:
FHA HECM loans require mandatory HECM counseling as a condition of loan approval. All HECM applicants must receive this counseling for “informed borrower” counseling from an approved source prior to loan approval.
FACT:
HECM loans don’t feature a monthly mortgage payment. Your loan officer will explain how the loan is paid off in greater detail, but as mentioned above, HECM loans become due when the borrower dies or sells the property. That means that as long as you use the home as your primary residence and stay current on financial obligations related to the upkeep of the property (taxes, etc.) your loan should not be due and payable.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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