May 5, 2015
If you are a qualified borrower aged 62 years or older and either own your home or are very close to doing so, you may be eligible for an FHA Home Equity Conversion Mortgage (also known as a HECM loan). HECM loans, also known as reverse mortgages, feature money back to the borrower and no mortgage payments. The HECM loan normally comes due and payable when the borrower dies or sells the home.
According to the FHA official site, the type of homes eligible are strictly residential in nature with an occupancy requirement for the borrower:
“To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.”
FHA HECM loans feature different cash payouts depending on whether you apply for a fixed rate or adjustable rate version of the loan. For adjustable rate HECM loans the following options are available:
- Tenure– equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term– equal monthly payments for a fixed period of months selected.
- Line of Credit– unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
- Modified Tenure– combination of line of credit and scheduled monthly payments for as long as you remain in the home.
- Modified Term– combination of line of credit plus monthly payments for a fixed period of months selected by the borrower. For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.
- Single Disbursement Lump Sum – a single lump sum disbursement atmortgage closing.
That list is from the FHA official site. Borrowers who want to apply for a fixed rate version of the HECM loan should discuss their needs with a loan officer to see what is available through the fixed-rate loan option.
How much can you get with an FHA HECM loan? According to FHA.gov:
“The amount varies by borrower and depends on:
- Age of the youngest borrower or non-borrowing spouse
- Current interest rate
- Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
- Initial Mortgage Insurance Premium”
As you can see, there is no one-size-fits-all FHA HECM loan package–your specific needs and financial options may vary a great deal from others who have applied for the same basic type of loan. There is one important feature of an FHA HECM loan you should know–all borrowers are required to have mandatory HECM loan counseling in order that the borrower fully understands the rights and responsibilities that go with signing the papers and closing the deal.
Do you have questions about FHA home loans? Ask us in the comments section. All questions and comments are reviewed prior to appearing on the website.
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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