Who Can Apply for a Home Equity Conversion Mortgage Loan?
A Home Equity Conversion Mortgage (HECM), or a reverse mortgage, is one of the most popular retirement incomes among homeowners aged 62 and above. Insured by the government, through Federal Housing Administration (FHA), the HECM loan program 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.
As opposed to traditional loans, the HECM loan program offers homeowners spendable funds that can be used to fulfill any requirement—right from travel to medical bills to home repairs. To make the golden years of a homeowner more comfortable, the US Department of Housing and Development (HUD) has set specific eligibility requirements for a Home Equity Conversion Mortgage loan, which, when adhered to, protects both the borrowers and lenders and at all times.
Eligibility Requirements for a Home Equity Conversion Mortgage for Borrowers
- To receive the full benefits of the HECM loan program, the borrower must be at least 62 years of age and must have his home listed as his/her primary residence.
- The borrower must own the home, and he/she must not be under any other federal debt.
- The homeowner must have a significant amount of equity in his/her home.
- The borrower can primarily choose between 3 different methods of payment options under the HECM loan program:
- Lump-sum: Under this payment option, the borrower gets all the available funds in one go at a fixed interest rate. The borrower is then required to pay the fees and interest on the entire loan amount.
- Line of Credit: The borrower receives money either in installments or through unscheduled payments. This payment option has an adjustable interest rate, and the borrower is required to pay the interest solely on the money that they have used. The unused credit in the account of the borrower grows overtime.
- Monthly Payout: The borrower can either choose a Term or a Tenure monthly payment. While the former refers to fixed monthly payments for a set number of months, the latter refers to fixed monthly payments as long as the borrower continues to reside in the home. In the case of Tenure, the borrower is only required to pay the fee and interest on the money used, has an adjustable interest rate, and the unused credit continues to grow.
HECM Loan Requirements and Guidelines
It’s important to be aware of the HECM loan program guidelines for both the borrower and the lender. This way, when a borrower seeks a HECM loan, he/she is well aware of the documents that a lender will require. Primarily, a borrower should showcase his/her financial capabilities to repay the loan, while at the same time, have sufficient finances to fulfill obligations such as property taxes, home insurance, and so forth.
- All employment income details need to be provided to the lender, and this includes documents by IRS Form W2.
- If the borrower has worked for less than 40-hours a week, or in part-time employment, this income will be considered as a financial assessment, as long as the borrower has held the job for two or more years.
- If the borrower has an overtime or bonus income that falls outside his/her standard salary, these finances will be taken into consideration as well.
- If a borrower only has a seasonal employment income and has had this for over two years, this income will be considered as an assessment as long as it’s likely that the borrower will continue to have the employment in the coming season as well.
- Income through other sources such as social security, rental properties, disability, etc. will also be considered as a financial assessment.
The HECM loan program also states that the borrower must have a positive credit history and no outstanding federal debt—which makes it one of the primary eligibility requirements for a Home Equity Conversion Mortgage. To get a complete list of Home Equity Conversion Loan guidelines, get in touch with the HECM experts at Senior Lending—your one-stop solution to all HECM loan requirement queries!
HECM Loan Program Appraisal Guidelines
One of the primary eligibility requirements for a Home Equity Conversion Mortgage, as per the HUD guidelines, is that when a borrower applies for a HECM Loan Program, his/her home must be appraised by a third party. In addition to factors such as the age and interest rate, the amount one can borrow will depend on the FHA mortgage limit and the lesser of the appraised value.
While determining the appraisal value, the following aspects are taken into consideration:
- Does the home/property have safe and portable water?
- Is there a sufficient supply of electricity?
- Is there access to domestic hot water?
- Are there appropriate sanitary facilities and sewage disposal methods?
In addition to the above mentioned, the appraisal value is also based on aspects such as the home being free of all health and safety hazards. If not, appropriate repairs must be completed before applying for a HECM Loan Program.
Limitations on the HECM Loan Program
The HECM Loan Program lists out certain limitations that a borrower needs to keep in mind.
- While withdrawing 100% of the principal limit was allowed earlier, as of 2013, the borrower is only allowed a 60% of the loan amount, or an addition of 10% of the principal limit along with other mandatory obligations such as property liens and existing mortgages.
- The borrower is liable to pay all property taxes and other hazard insurance premiums in addition to the upfront loan costs.
The aforementioned are only a few of the essential factors to consider before applying for a HECM Loan Program. To get a complete list of eligibility requirements for a Home Equity Conversion Mortgage, visit the Senior Lending FAQ page and seek answers to all your queries. One of the most trusted HECM reverse mortgage company in the USA, the HECM experts at Senior Lending, will ensure that your retirement years go precisely as you’d planned them!