Home Equity Conversion Mortgage
Home Equity Conversion Mortgage (HECM) is by far the most popular type of reverse mortgage. There are reasons it is the most widely used. HECMs are federally insured, and are backed by the U.S. Department of Housing and Urban Development (HUD). While it will typically be more expensive than a traditional home loan with higher up front costs, it has no income limitations or medical requirements and can be used for any reason. Below are basic eligibility requirements for HECM reverse mortgages.
- The borrower must be 62 years of age or older
- The borrower’s home must be a single-family residence, HUD-approved condo project, manufactured house that meets FHA requirements, or a two-to-four-unit building where they occupy one unit
- The home is the borrower’s principal residence
- The borrower owns their home outright or has a low enough mortgage balance that they can pay it off with the loan proceeds
- The borrower is not delinquent on any federal debt
- The borrower has the financial means to continue paying for their property taxes, homeowners insurance, repairs and maintenance on their home, and homeowner’s association fees (if applicable)
- The borrower has visited a federally approved financial counselor, who has explained the HECM process, requirements, costs, and loan alternatives to them.
There are a host of other concerns but these are the basic requirements. If it is determined that the borrower should take out a HECM, the next step is to figure out how much they can borrow with the reverse mortgage. This number is found by considering the age of the borrower, the value of the home, and the current interest rates. After the loan is established, there will be multiple payment options for the borrower to choose from, and it is possible to change the payment option for a small fee. More on that later.