If you are an older adult who is interested in preserving your financial security, you may want to consider an HECM mortgage. HECM loans were designed with older adults in mind; enabling elderly residents to use applied equity from their home to fund their social security, pay off medical bills or make necessary improvements to their home to better equip their property for aging demands. Prior to taking out an HECM mortgage, here are a few simple things you need to know.
What Does HECM Stand For?
HECM is an acronym for Home Equity Conversion Mortgage. While this sounds like quite a mouthful, it is a term used exclusively by the Federal Housing Authority’s mortgage program aimed at older adults.
What is a Reverse Mortgage?
The concept of a reverse mortgage is actually quite simple to comprehend. Essentially, it is a unique type of mortgage that lets you take part of your equity (accumulated over years and years of monthly payments) and convert it to cash. This cash can then be used to purchase a new home or condo; or be applied to other uses both in and around the property. The Home Equity Conversion Mortgage is a type of reverse mortgage and is unique in the fact that borrowers do not have to worry about repayment of the loan until they no longer meet the obligations set forth by the mortgage terms. This is quite different from other loans and gives the homeowner much more financial freedom.
How Do I Qualify?
According to the Federal Housing Authority, applicants must be 62 years of age or older at the time of application; own a home outright or have a presently low mortgage balance; live in the home; and have the financial resources needed to maintain payments on property taxes, insurance, and utilities. Prior to obtaining a loan, applicants must also meet with a reverse mortgage counselor to ensure they understand the terms and conditions of the loan and are able to keep up with the financial demands.
What Homes Are Eligible?
For eligibility purposes, an HECM mortgage covers single family homes and two to four unit homes when one unit is occupied by the applicant. Some condominiums may be eligible, too, which presents a viable option for those looking to move into an active older adult community.
What are the Benefits?
An HECM for purchase reverse mortgage has a number of unique advantages. For instance, HECM loans require no monthly payments – so borrowers do not have to worry about remembering to pay a set monthly fee. HECM reverse mortgages also have no pre-established maturity date and are considered “non-recourse” loans; meaning that borrowers and their heirs are not responsible for any balance that exceeds the cost of the home at the time the home is sold.
