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A Home Equity Conversion Mortgage (HECM) may allow you purchase a home without ever having to make a mortgage payment.

HECM loans are a Federal Housing Administration (FHA) insured.  Qualifying borrowers can use a portion of their equity from the sale of a previous residence to buy their next primary home in one transaction.

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Frequently Asked Questions

Can I Borrow Additional Funds After I Purchase a Home with a HECM Mortgage?
Yes, unlike other types of fixed Mortgages, you can increase your HECM borrowing power as your home increases in value. There are typically 12-month timeline restrictions before accessing additional equity. Your HECM mortgage can also be refinanced in the future.

 

What are the Loan Limits?
The amount that is available generally depends on four factors: age, current interest rate, appraised value of the home, and government imposed lending limits. Use the calculator to estimate the value of the home, or amount of funds that could be available.

Does the Homeowner Keep Title to the Property?
Borrowers maintain title and may remain in the home indefinitely, even if the loan balance becomes greater than the value of the home.
The general loan conditions are: At least one homeowner lives in the home as their primary residence, continues to pay required property taxes and homeowners insurance and maintains the home in accordance with FHA requirements.

Can Heirs Inherit an Estate with a HECM Loan?
Yes.  HECM loans are structured to preserve equity in the property. In the event of death or in the event that the home ceases to be the primary residence for more than 12 months, the homeowner’s estate has 6 months to either refinance the property/repay the HECM loan, or sell the property.

If the equity in the home is higher than the balance of the HECM mortgage when the home is sold, the remaining equity belongs to the estate. If the home sells for less than the amount of the mortgage, the lender must take a loss. No other assets are affected by a HECM mortgage: (Investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the mortgage.)

 

What is the Difference Between a Home Equity Loan and a HECM?
Typically, a home equity loan, second mortgage, or a home equity line of credit (HELOC) have strict requirements for income and creditworthiness. Also, as with other traditional loans the homeowner must make monthly payments to repay the loans, and is responsible for property taxes, insurance, and maintenance.

Generally a HECM or reverse mortgage has no credit score requirements. The homeowner receives cash from the lender without being required to make payments. The homeowner is required to use the home as their primary residence, and is still responsible for property taxes, insurance, and maintenance.

Benefits of a HECM mortgage

Regardless of how long you live in the home, or what happens to your home’s value, you only make one initial investment (down payment) toward the purchase.
Customer benefits include:

  • Eliminates monthly mortgage payments
  • Increases your purchase power
  • Preserves your cash and investments

Common reasons to use a HECM for Purchase

  • Right-size to a smaller, lower maintenance home
  • Buy a home closer to family or friends
  • Lower the cost of living during retirement
  • Enjoy carefree living in a senior housing community

Eligibility Requirements

  • Youngest titleholder must be 62 years or older
  • Purchased home must be a primary residence occupied within 60 days of loan closing
  • Property must be a single family home, 2-to-4 unit owner-occupied dwelling, FHA approved condo, or manufactured home that meets FHA requirements.
  • The difference between the purchase price of the new home and the HECM loan proceeds must be paid in cash from qualifying sources such as the sale of prior residence, home buyer’s other assets or savings
  • Borrower must complete a HUD approved counseling session
  • Must meet financial eligibility criteria as established by HUD
  • Must maintain basic FHA loan obligations:  (Usually homeowners insurance, property taxes and general home maintenance)

Determining Your Proceeds

The amount of money you may receive from a HECM for Purchase Loan depends on the following:

  • Age of the youngest titleholder
  • Current interest rates
  • The lesser of the appraised value, the purchase price or the FHA lending limit

Funds available to you may be restricted for the first 12 months after loan closing, due to HECM requirements.  You may need to set aside additional funds from loan proceeds to pay for taxes and insurance. Consult a HECM Advisor for detailed program terms.

Safeguards for Borrowers

• Mortgage Insurance Premium (MIP) ensures the amount owed on the loan can never be more than the value of the home at time of sale
• Independent HUD counseling is required prior to loan application
• A Lender may only look to the value of the home for repayment; no other assets may be attached if the loan balance grows beyond the mortgaged home value (non-recourse loan)

Loan Obligations

You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements.

As required by the Federal Housing Administration (FHA), you will be charged an initial mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.

The “available amount” above does not include closing costs and is an estimate based upon the information provided. The actual amount you receive is based on the age of the youngest borrower, current interest rates and the lesser of the appraised value of your home, sale price, or the maximum lending limit. A portion of the funds available to you may be restricted for the first 12 months after loan closing, due to HECM requirements. Consult a HECM Advisor for detailed program terms.