July 9, 2024
The FHA Home Equity Conversion Mortgage (HECM) loan is a home equity loan option for qualifying borrowers 62 or older.
There are no monthly payments on an FHA HECM. The borrower can get cash back on the transaction, and the loan is typically due in full when the borrower dies or sells the home.
Qualifying HECM borrowers are, once their loan application is approved, able to withdraw “a portion of your home’s equity to use for home maintenance, repairs, or general living expenses,” according to the FHA and HUD official site.
You can also apply for an FHA reverse mortgage to purchase a primary residence, but you must use your own cash to make up any difference between FHA HECM funds, the sale price, and any associated closing costs.
HUD.gov says HECM loans are the “only reverse mortgage insured by the U.S. Federal Government,” which makes them an easier sell for lenders thanks to the government guarantee.
Qualifying Properties For FHA Reverse Mortgages
Not only must the borrower qualify for the loan, but the property must also meet a set of standards to be eligible for an FHA reverse mortgage. The home must be an owner-occupied residence.
It must be a single-family or 2 to 4-unit home with the borrower living in at least one unit. Condo projects and manufactured housing may qualify but you must ask the lender whether they are willing to issue HECM loans on these property types.
How Much Cash Back?
How much you can apply for using an FHA HECM depends on factors that include the age of the youngest borrower obligated on the loan. The age of an eligible non-borrowing spouse may also play a role in loan approval.
The current interest rate can affect how much cash you are offered as part of the transaction. Another factor to consider? The amount of cashback is also affected by which item is the lesser amount: the appraised value of the home, the HECM FHA mortgage limit, or the home sales price, depending on circumstances.
Important Facts To Remember About FHA Reverse Mortgages
FHA reverse mortgages have rules in HUD 4000.1 that require the borrower to attend HECM loan counseling before the loan can be approved and closed. This is in part to ensure the borrower knows their responsibilities under the program and how to avoid violating the loan agreement.
Some borrowers don’t realize an FHA reverse mortgage can be declared due in full if the borrower stops using their home as their main address. You can’t have an FHA reverse mortgage on a home you don’t occupy as your primary residence.
This requirement is just one to remember when considering options under the FHA HECM loan program. Another issue?
The participating FHA lender has the right to call the HECM loan due in full if the borrower does not pay their property taxes as required in the loan agreement.
These potential problems are just some reasons HECM counseling is required of all FHA reverse mortgage borrowers as a condition of reverse mortgage approval.
Locate an FHA HECM loan / reverse mortgage counselor near you using the HUD HECM Counselor Roster.
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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