Home Equity Conversion Mortgage (HECM)
If you’re age 62 or older, you can receive money from your mortgage company by borrowing against the value of your home through a reverse mortgage. Typically, you can receive up to 40-50% of your home value. The payments you receive along with accrued interest and other charges increase the loan’s balance and decrease your equity in the property.
Most reverse mortgages are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program.
As long as you live in the home as your primary residence, maintain the home, and pay homeowner’s insurance, property taxes, and homeowner’s (sometimes referred to as “HOA” fees) and/or condo association dues (if applicable), the loan does not have to be repaid.
If the property is sold or the last surviving borrower no longer occupies the property or passes away, the loan becomes due and payable. Usually, the home is sold to repay the loan and, if FHA-insured, FHA pays for amounts not fully covered by the sale proceeds.
Reverse to Purchase Home Equity Conversion Loan
With the HECM for Purchase program, instead of getting the reverse mortgage on your current home, you would inform your reverse mortgage lender that you wish to buy a new home using the reverse mortgage. The lender will then calculate the amount of money you qualify to receive as though you already owned the property.
Your qualification and loan amount are calculated using:
If you qualify for enough money to permit you to purchase the property, you can then do so, and live in the home for as long as you wish, as you would with a normal reverse mortgage.
The fees, interest rates, terms, and conditions of the loan are all identical to those of a normal reverse mortgage, meaning that you never have to make any payments for so long as you are living in the property. None of the money you borrow with the reverse mortgage has to be paid back until you (or your spouse) are no longer living in the property. However, it is important to note that the home must be maintained and all taxes and insurance must be paid for the duration of the reverse mortgage.
The home purchased with the aid of a reverse mortgage must become your primary residence.