Home Equity Conversion Mortgage (HECM) is the oldest and most popular reverse mortgage program. The program is run by Federal Housing Administration (FHA). In line with the goals of a reverse mortgage program, HECM lets a borrower borrow money using home equity. Details of borrower eligibility, property eligibility, basis of payments, payments options,
The eligibility for HECM borrower is as follows:
- Age should be 62 or above
- Should be owning the property completely (100%) or have a small mortgage balance
- Should be occupying the property as his / her principal residence
- Not be delinquent on any federal debt
The following properties types are eligible for HECM program:
- Simple family home or 1-4 units home where atleast one unit is occupied by the borrower as his principal home
- HUD approved condominium
- Manufactured homes meeting FHA requirements
Under this program, the payout to the borrower is based on following key factors:
- Age of the youngest borrower: for this parameter, higher the age, better amount can be borrowed
- Current interest rates, higher the interest rate lower is the payout
- Lesser of appraised value or the HECM FHA mortgage limit or the sales price
- Based on the value of your house, more the value higher the payout
- The initial Mortgage Insurance Premium (MIP) option you choose (2% HECM Standard option or .01% HECM Saver option).
There are various payment options available in the program, they are:
- Line of Credit
- Modified Tenure
- Modified Term
Borrower can change the choice with a nominal fee of USD 20.
While there is no limit of homes which qualify for this program but there is a max limit of how much you can borrow. The borrow limit is calculated as lower of the appraised value, sales price or the FHA HECM mortgage limit of USD 625,500.
Costs associated with the HECM program
In terms of cost associated with HECM program, borrower is charged: