FHA Reverse Mortgages for Consumers: Home Equity Conversion Mortgage
The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which enables the borrowers to withdraw some of the equity in their home. The borrower can choose how they want to withdraw their funds, whether in a fixed monthly amount or a line of credit or a combination of both.
The borrower can also use a HECM to purchase a primary residence if they are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property they are purchasing.
The borrower must be 62 years of age or older and own the property outright or have a small mortgage balance. The borrowers occupy the property as their principal residence. The borrower must also not be delinquent on any federal debt and must participate in a consumer information session given by an approved HECM counselor. There is no income employment qualifications required of the borrower. There is also no repayment as long as the property is their principal residence and the obligations of the mortgage are met. The closing cost may be financed in the mortgage.
The homeowner can borrow against the equity in their home and can choose between the five payment plans. The five payment plans includes Tenure, Term, Line of Credit, Modified Tenure and Modified Term. In Tenure payment plan, there are equal payments as long as at least one borrower lives and continues to occupy the property as a principal residence. In Term payment plan, there are equal monthly payments for a fixed period of months selected. In Line of Credit payment plan, there are unscheduled payments or in installments, at times and in an amount of the borrower's choosing until the line of credit is exhausted. In Modified Tenure payment plan, it is a combination of line of credit plus scheduled monthly payments for as long as the borrower remains in the home. In Modified Term payment plan, it is a combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
There is no limit on the value of homes qualifying for a HECM. The value of the borrower's home will be determined by an appraisal. However, the amount that the homeowner may borrow is derived from the lower of the appraised value, sales price or the FHA HECM mortgage limit of $625,500. The borrowers are charged an upfront insurance premium of 2 percent of the maximum claim amount for HECM Standard and .01 percent for the HECM Saver. In addition, the borrower will have an annual mortgage insurance premium of 1.25 percent.