November 19, 2010
The FHA offers a wide range of home loans and government home loan refinancing programs, but one in particular is just for seniors who have equity in their homes. Known as a HECM or Home Equity Conversion Mortgage, the FHA advertises HECM loans as “a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements and more.”
There are many reasons why a qualified senior would be interested in applying for a HECM loan. HECM is basically a reverse mortgage–the kind of FHA home loan that allows the borrower to convert equity into a loan amount. But a reverse mortgage doesn’t function like a second mortgage. There are no loan payments and the loan only comes due when the borrower dies or sells the home.
Due to FHA occupancy rules, the loan would also come due if the borrower stopped using the home as their primary residence, so HECM isn’t for summer homes or second homes.
HECM is only for homeowners 62 and older and who either own their homes outright or have such a low outstanding balance that it can be paid off when the HECM loan closes. HECM borrowers are required to get consumer counseling before being approved for a reverse mortgage.
HECM loans are for single family homes and for homes with up to four units, one of which must be occupied by the borrower. The FHA also allows HECM loans for HUD-approved condos and mobile homes that meet FHA requirements–including being attached to a permanent foundation.
The FHA allows HECM loans on homes purchased with an FHA mortgage and non-FHA homes alike. There is no restriction based on how you financed the home originally.
FHA HECM loans differ from second mortgages or home equity lines of credit because income is not a factor. The FHA does not have a minimum income requirement, instead the equity in the home being financed is the guiding factor. The older and more valuable a given home is, the more loan money you may qualify for under the FHA HECM program.
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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