June 7, 2016
The FHA reverse mortgage, also known as a Home Equity Conversion Mortgage, is a special type of FHA mortgage loan. Not everyone can qualify for an FHA reverse mortgage-there are specific age requirements, occupancy requirements, and more. We are often asked about reverse mortgages, here are some of the most commonly asked FHA HECM loan questions and their answers.
Who can qualify for an FHA HECM / Reverse Mortgage loan?
The FHA reverse mortgage program (HECM loans) is intended for borrowers aged 62 or older who either own their property outright or are very close to doing so. Proof of loan payoff will be required, and all FHA HECM loan applicants will be required to certify that the home securing the reverse mortgage is the primary residence and not a vacation home or seasonal home.
What is the occupancy requirement for an FHA HECM?
HECM loans are only for primary residences. The HECM borrower must use the home secured with the HECM as the primary residence much in the same way that borrowers applying for new purchase FHA mortgages must occupy the home.
The difference with HECM loan is that, unlike a new purchase FHA mortgage where the borrower must occupy the home as the primary residence “for at least one year”, for an FHA reverse mortgage the borrower must continue to occupy the home as a condition of the loan.
How does an FHA reverse mortgage work?
The applicants apply for the loan, and those who financially qualify are approved for the reverse mortgage, which features either a single payout to the borrower for fixed rate HECM loans, or a range of options including multiple payments for those who choose an adjustable rate HECM loan.
The borrower or borrower’s estate does not repay the loan until the property is sold or the borrower dies. There are no monthly mortgage payments on an FHA reverse mortgage. FHA HECM loans can be declared due in full if the borrower does not meet certain requirements including the previously mentioned occupancy rules and others which we’ll address below.
What are the borrower’s obligations for a HECM loan?
An FHA HECM borrower is contractually bound by the specific terms of the loan agreement, and also FHA loan rules which require the borrower to remain in the home secured with the HECM loan as the primary residence, stay current on property tax obligations, be responsible for upkeep and maintenance of the property, etc.
For this reason, FHA loan rules require HECM loan counseling for all parties to be obligated on the loan as a condition of the transaction. Borrowers must be fully informed as to their rights and responsibilities under the FHA HECM loan program. An escrow account may be required to help the borrower meet property tax and hazard insurance requirements.
Speak to a participating lender to learn more about the FHA HECM loan program and how to get started.
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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