FHA's HECM Reverse Mortgage Explained

The FHA HECM reverse mortgage program is a loan that can help seniors create regular source of income for themselves. This loan works differently than any other type of mortgage loan on the market. Here are the basics of the FHA HECM reverse mortgage and how it works.

How it Works

With this type of mortgage, the bank is actually going to be paying you for the equity in your home. Instead of receiving a lump sum like you do with a home-equity loan, the bank is going to make regular monthly payments to you. At that point, you will not be required to make any monthly payments on the loan. After you have received all of your payments, you are free to live in the house as long as you wish. The bank will only be repaid once you sell the house or when the last surviving spouse passes away.

Who is Eligible?

Not everyone is eligible for this type of mortgage program. In order to qualify, you must be at least 62 years of age. This will be based on the youngest borrower in the home. In addition to this, you have to have a mortgage that is paid off or has an extremely low mortgage balance that you can pay off as a result of getting the money from the reverse mortgage. You also have to actually live in the property as your primary residence. Second homes or vacation homes are not eligible for this program. You cannot have any delinquent federal debt on your record either. The last personal requirement is that you attend a consumer information session presented by a certified HECM counselor.

Financial Requirements

This type of loan does not have the normal financial requirements associated with it. You do not have to have a certain credit score or income in order to qualify for the loan. The lender does not care how much money you make because you will not be making monthly payments to them. The HECM program will also allow you to finance the closing costs from the loan into the balance.

Property Requirements

With the HECM program, not every type of property will fit the requirements for this loan. A single-family home is one type of residents that is preferred with this loan program. You can also qualify with a 2 to 4 unit home as long as you live in one of the units as your primary residence. You can also live in a condominium as long as it is HUD approved. The last type of property that is eligible for this loan is a manufactured home. With manufactured homes, they will have to pass FHA standards in order to be eligible for the HECM program.

Receiving Payments

You can choose to receive payments in a number of different ways. You could receive equal payments until the equity runs out, you could choose a certain number of months to receive payments, or you could basically have a line of credit available to you.