The FHA reverse mortgage loan program is known as the Home Equity Conversion Mortgage or HECM for short. Lots of people are interested in reverse mortgages–but who qualifies for the FHA version of the reverse mortgage and how do you know if your home is eligible for the loan?
Differences Between FHA HECM Loans and Traditional Refinancing
It is important to understand the difference between an FHA HECM loan and traditional refinancing. “A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.” That’s according to the FHA official site at www.FHA.gov. That is different than traditional refinance loans because of the cash-for-equity arrangement.
FHA HECM loans are not like standard home equity loan or second mortgage for one very important reason. According to FHA.gov, “HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you 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 you are purchasing.”
Who Is Eligible For An FHA HECM?
“To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.”
That’s found at FHA.gov and is the most important basic initial guideline for those thinking about this type of home loan option. But there’s more–for those who meet the age requirement, there’s some good flexibility built into the FHA reverse mortgage program.
Is My Home Eligible Even Though It was Purchased With a Non-FHA Mortgage?
The FHA reverse mortgage program allows a HECM loan on property regardless of whether it was purchased with an FHA mortgage or not–homeowners who have paid off or are close to paying off a traditional mortgage or refinance loan that is conventional, VA or otherwise non-FHA guaranteed, may apply for an FHA HECM. Single family homes or a multi-unit with a maximum of four units (one must be occupied by the borrower) are eligible for FHA reverse mortgages.
FHA HECM loans are not available for investment properties and there is a residency requirement for the home after the HECM loan has closed–talk to your lender about these requirements and how they may affect the status of your loan later down the line if there is a question about occupancy issues, etc.
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