April 12, 2011
The FHA reverse mortgage, also known as a Home Equity Conversion Mortgage or HECM loan for short, can be an important tool for many seniors. The FHA reverse mortgage is a home equity conversion loan that allows qualified borrowers age 62 and older to get a mortgage that has no monthly payments and is only payable when the borrower dies or sells the home.
Like other FHA mortgages, FHA HECM loans have occupancy requirements and the borrower can only apply for a Home Equity Conversion Mortgage for the home they use as the primary residence. As with any major financial commitment, the HECM loan is not to be entered into lightly or without serious planning. That’s one reason why the FHA has mandatory counseling required as part of any HECM loan approval process; the government wants HECM borrowers to understand what this type of loan is all about.
AARP.org strongly encourages seniors to look at the terms and conditions of any HECM loan or reverse mortgage carefully before making a decision and asking a few important questions. Why is a HECM loan needed? What do you want to do with the money from a reverse mortgage or FHA HECM loan? What are your plans for the future in the current home?
The planning aspect of a HECM loan is especially important because of the nature of the occupancy requirement. Under HECM loan rules, any borrower who is away from the home for a year or more risks having the loan declared due and payable. For borrowers in good heath with no need of extended care hospitalization, a HECM loan makes more sense than it would for a borrower who may require an extended stay in a nursing home, assisted care facility or other in-patient facility.
Naturally there are circumstances where a HECM loan would not be declared payable in such an event–if there are two borrowers and only one is away from the home, the occupancy requirement is still fulfilled.
But these types of scenarios must be considered before the borrower decides to commit to the loan. One thing a HECM loan applicant should never do is to give in to high-pressure sales tactics or respond to unsolicited sales calls encouraging the use of HECM funds to pay for goods or services–at the very least the borrower should check with the FHA or an FHA-referred credit counselor before responding.
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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