The Home Equity Conversion Mortgage (HECM) program is a government-backed reverse mortgage product that enables individuals over the age of 62 to obtain a loan depending on the equity in their homes.
This program allows individuals to choose how they want to withdraw their funds. They could either withdraw a fixed amount every month or opt for a line of credit or maybe a combination of both.
Senior borrowers with little to no income with only a few assets can apply for this program to derive an income based on home equity.
Let’s take a comprehensive look at how reverse mortgages can help senior homeowners convert their home equity into cash.
Understanding Reverse Mortgage
You might find yourself wondering, what is a reverse mortgage?
A reverse mortgage is similar to a conventional mortgage, with the roles switched. A conventional mortgage is where a person takes out a home loan and then gradually repays the lender.
But in a reverse mortgage, the individual owns a home and obtains a loan from a lender they might not necessarily pay back. Reverse mortgage loans are never actually repaid by the borrower. When the borrower moves or passes away, their heirs sell their property to repay the home loan.
Reverse mortgages are usually issued through government-insured programs with proper lending standards and rules. The Home Equity Conversion Mortgage program is one of those government-insured programs that enables lenders to make loans by offering FHA insurance.
How Does the Home Equity Conversion Mortgage Work?
Many factors are taken into consideration to qualify for the Home Equity Conversion Mortgage program. This can depend on the amount of the loan, the current interest rate, and the borrower’s age.
Even though people have the option to repay their lenders during the term of the loan but they aren’t required to.
Individuals who qualify for the HECM can opt to receive their loan in a lump sum as a credit line or monthly payments. The loan or balance will increase monthly if you select the monthly payments option. And if you select the credit line option, the balance will increase each time you draw money and will have an adjustable interest rate.
If you choose not to make the payments, the accruing interest will automatically get added to the loan balance, which will be paid off when the homeownership changes. The estate will repay the loan once the individual passes away. But if they opt to sell the house, the payment will have to be made at that time.
Reverse Mortgage Eligibility
To become eligible for the government-backed reverse mortgage program, they must:
- At least be 62 years old or older
- Own the property or have made a considerable down payment
- Occupy that property as their primary residence
- Not have any federal debt or a criminal record
- Have adequate financial resources to be able to make timely payments for any ongoing property charges like the Homeowner Association fees, insurance, and property taxes
- Take part in a consumer information session hosted by a HUD-approved HECM counselor
In addition, their property must:
- Either be a single-family home or a two-to-four-unit home
- Or be a HUD or FHA-approved condominium
- Or if it’s a manufactured home, it must meet the FHA requirements
This helpful program is beneficial for senior homeowners with little to no income since it provides them with access to a stream of income to help with their expenses. This program also allows people to tap into their home’s equity and gain benefits from it without having to sell it first.
Need more guidance to obtain a mortgage loan? Talk to licensed mortgage lenders in New York at Atlantic Home Capital.
Their team of highly-qualified mortgage consultants have decades of experience and can walk you through the complex process of applying for a home loan. They also provide a range of mortgage loans, including FHA loans for first-time homebuyers and modular mortgage loans for people who are interested in investing in prefabricated homes.
Get in touch with their mortgage lenders in New York today to get started.
About the Author
Brad Whitman is one of the leading mortgage consultants working with Atlantic Home Capital for the last eight years. With extensive experience in the industry, the author writes comprehensive guides for people who are looking to obtain home loans or buy a home for the first time.
The author writes about different types of mortgage loans, including FHA, investment property, bank statement, and conventional loans. In their free time, the author likes to tend to their herb garden and explore the different art scenes in New York City.
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