home equity conversion mortgage

What is Home Equity Conversion Mortgage (HECM)?

Seniors that live in a house can get money by setting up a reverse mortgage through the Federal Housing Administration (FHA). The Home Equity Conversion Mortgage (HECM) allows those who are 62 or older access to their home's equity as long as they’ve paid off the majority or all of their mortgage. This basic overview may help you understand more about HECM. 

How Does it Work?

An HECM takes the equity in your home and turns it into money you can use for home improvements, bills, or whatever you want. A borrower of an HECM doesn’t have to make monthly payments to repay the loan unlike a traditional mortgage until they are no longer inhabiting the home as their primary residence. At that point, the loan must be repaid, or the amount is taken from the equity of the home.

What Are the Eligibility Requirements?

As mentioned before, the only people who are eligible for this type of loan are those age 62 or older. There are some additional requirements such as:

  • Own the property outright or paid-down a considerable amount
  • Occupy the property as your principal residence
  • Not be delinquent on any federal debt
  • Have financial resources to continue making timely payments of ongoing property charges (such as property taxes, insurance, and Homeowner Association fees, etc.)
  • Participate in a consumer information session given by a HUD-approved HECM counselor
  • Income, assets, monthly living expenses, and credit history will be verified
  • Timely payment of real estate taxes and hazard and flood insurance premiums will be verified
  • Single family home or two-to-four unit home with one unit occupied by the borrower
  • HUD-approved condominium project
  • Manufactured home that meets FHA requirements

HECM vs. Home Equity Loan

A home equity loan is a second mortgage that places a second lien on your home. Additionally, a home equity loan requires monthly payments until the amount borrowed is paid back. An HECM does not put a second lien on your home, but a home with an HECM cannot be given in an estate until the loan reverse mortgage is entirely paid. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

How Much Money Can You Get With an HECM?

The amount of money you get depends on multiple factors, which makes it impossible to determine how much you’ll get for your home. First of all, it depends on how much equity you’ve built in your home. Second, the age of the borrower is taken into account. Finally, the current interest rate determines how much money you can get with your HECM. For more information on home equity conversion mortgage, you can use the Department of Housing and Urban Development’s website to find an FHA-approved lender or to speak with an HECM counselor.