How Do HECM Loans Work? A Guide for Senior Homeowners
HECM, also known as Home Equity Mortgage Loans, is a form of reverse mortgage that has gained immense popularity among seniors in the USA. Considered as one of the most popular retirement income among homeowners aged 62 and above, the government insures this scheme through the Federal Housing Administration (FHA). HECM Reverse Mortgage allows for a hassle-free conversion of home equity into either a monthly stream of income or a full-time payment—depending entirely on the opted choice of payment by a homeowner.
HECM Reverse Mortgage is different from traditional loans, which is to say that the HECM loan program offers homeowners spendable funds that can be used to fulfill any requirement—right from travel to home repairs to medical bills. The HUD (US Department of Housing and Development), has now given way for the senior homeowners to make their golden years of retirement more comfortable by setting specific eligibility criteria to avail the HECM Reverse Mortgage loan, which, when adhered to, protects both the borrowers and lenders and at all times.
So, how does a HECM loan work? To understand this, let us first take a look at the prerequisites to avail of a HECM Reverse Mortgage Loan.
To apply and qualify for a HECM Reverse Mortgage loan, there are specific criteria that a borrower/homeowner needs to fulfill:
- The borrower must be at least 62 years and above.
- The home or property must be the primary residence of the borrower.
- The property/home must meet FHA health and safety standards, FHA flood requirements and property standards, and also pass an FHA approval.
- The borrower must own the home or at least have a significant amount of equity towards the property.
To get a complete list of HECM Reverse Mortgage loan eligibility criteria, you can get in touch with the HECM experts at Senior Lending—your one-stop solution to all HECM Reverse Mortgage Credit Line and Purchase queries!
How do HECM Loans Work?
When you apply for a HECM Reverse Mortgage loan, several factors are taken into consideration. These primarily include: your age at the time of application, the value of your home at the time, the interest rate of the loan, etc. These factors are then calculated to establish a principal limit or a borrowing limit. The homeowner or the borrower then receives liquid cash based on the principle limit by holding the home as collateral. This money can be used by the senior homeowner to fulfill any of his daily/monthly needs and expenses, or even to pay their medical bills. The homeowner can continue enjoying the property as long as the required taxes are paid on time, and he/she continues to reside in the same property until their demise or decide to move. Post this, either the lender gets the property or can be passed on to the homeowner’s heir, provided the loan is repaid to the lender in full.
HECM Reverse Mortgage Property Types
HECM Reverse Mortgage works and is available for every senior homeowner across the USA who meets the minimum age criteria of 62 and above. However, to be eligible to avail of this scheme, you must determine if your existing property falls until the guidelines set by the HECM Reverse Mortgage company.
How Does a HECM Loan Work under Different Property Types?
For your property to qualify under the FHA’s HECM Reverse Mortgage scheme, your home must fall under the below-mentioned categories:
- Single-family residences
- have a minimum of 1-4 unit homes
- it should be permanently affixed to an FHA approved foundation
- homes that are double or triple wide manufactured and built after 1976
- must be FHA approved townhomes or condominiums
- and finally, the property must be owner-occupied
Properties that cannot avail HECM Reverse Mortgage Loan
When considering a HECM Reverse Mortgage Loan, remember that not all properties are covered under this scheme. The HECM Reverse Mortgage scheme does not cover:
- vacation homes
- second homes
- rental homes
The only exception made here is for rental homes, where a HECM Reverse Mortgage scheme can be availed if the rental space is a multi-unit home or residence, and the homeowner has occupied at least one of the said units.
Why Consider Availing a HECM Reverse Mortgage Loan?
HECM Reverse Mortgage is an attractive scheme that provides a safe and secure route to retirement for senior homeowners. When you avail of this scheme, the most notable benefits include:
- Homeowners continue to retain ownership of their property even after availing of the HECM scheme.
- Homeowners of borrowers can choose from 3 primary methods of payments to receive funds—tenure, line of credit, or lump sum.
- They can tap into their home equity and make it a source of their monthly or yearly steady income.
- Homeowners can use the funds to fulfill any of their financial responsibilities.
- There is absolutely no burden of monthly payments against the loan.
- Homeowners can pass on their home or property to their heir under this scheme as long as they follow the HECM Reverse Mortgage
The above mentioned are only a few of the main benefits of the HECM program. To get a complete list of eligibility criteria and other details of this scheme, visit Senior Lending—your one-stop solution to all HECM Reverse Mortgage queries and guidelines.