The Home Equity Conversion Mortgage, also known as HECM, is the most popular type of reverse mortgage loan. What makes the home equity conversion mortgage so popular?
HECM Explained
The various payments options, low interest rates and the fact that it is the only reverse mortgage insured by the Federal Housing Administration (FHA), a branch of the U.S. Department of Housing and Urban Development, are just a few reason why HECM loans are the most prevalent.Of all the reverse mortgages, HECM loans generally provide the most sizeable loan advances and a variety of ways for you to get paid by the reverse mortgage lender. HECM loans are also relatively inexpensive when compared to other reverse mortgages .
HECM ELIGIBILITY
In order to apply for a home equity conversion mortgage, the reverse mortgage borrower(s) must
- Be at least 62 years old;
- Live in any of the 50 states, District of Columbia or Puerto Rico
- Be a homeowner with some equity in the home;
- Be living in a qualifying home as his/her primary residence
The HECM loan allows any homeowner listed on the title to be eligible granted that the above factors are met. The FHA, however, calculates the loan based on the youngest qualifying borrower if there are multiple people on the title.
HECM PROPERTY REQUIREMENTS
The following types of homes are eligible for a home equity conversion mortgage:
- Single family residence in a one to four unit dwelling; OR
- Condominium; OR
- Part of a planned unit development (PUD); OR
- Manufactured home (Varies. Consult a loan specialist to find out more information)
REPAYING YOUR HECM
Similar to that of most reverse mortgages, the home equity conversion mortgage loan only needs to be repaid when the last surviving borrower leaves the home. There are of course a couple of exceptions that would require immediate payment, which include:
- Failing to maintain the property, allowing it to deteriorate without correcting the problem (reasonable wear and tear is acceptable)
- Failing to pay property taxes and/or insurance These situations are of course dependent on the borrower. If you keep your property in good shape and property taxes and insurance current, you will not have to repay a dime until you leave your home, all on your terms.
LOAN AMOUNT
The amount of money a reverse mortgage lender loans to you depends on a few factors. These factors include the borrower’s age, current interest rates, current home value as well as the location of the home. The Federal Housing Administration (FHA) limits the amount of money HECM lenders can loan to reverse mortgage borrowers based on the county that the property is located. These values are defined in Section 203b of the National Housing Act. The limits generally changes annually in January, but may change anytime during the year.
In other words, the reverse mortgage lender cannot lend more money than the lending limit of your county, even if your house appraises for higher than the limit. So if your house appraises for $300,000, but your county’s lending limit is $245,000, you will still be eligible for a HECM loan.
However, the amount of money you receive would be the same as if you home was valued at $245,000. And finally, the final factor that determines the reverse loan amount you receive depends on the type of payment plan you choose (lump sum, line of credit or a combination).
HECM FEES
Generally, most reverse mortgage home equity conversion mortgage loan fees can be paid for with the current equity in your home. The difference between the loan amount and the loan fees is for you to spend on anything you would like. Most of the fees associated with a reverse mortgage includes orgination, servicign, mortgage insurance premium (MIP) and interest.
ORIGINATION FEE
The origination fee for a reverse mortgage covers the preparation and processing cost of the loan. The Federal Housing Administration (FHA) limits the amount a reverse mortgage lender can charge for origination fees to no more than 2% of the maximum claim amount. If 2% of the maximum claim amount ends up being less than $2,000, the lender can only charge the borrower up to $2,000 in origination fees.
