HECM Loans
Home Equity Conversion Mortgage Designed For Eligible Homeowners
A Home Equity Conversion Mortgage, commonly called a HECM, is a federally insured reverse mortgage program designed for eligible homeowners age 62 and older. A HECM can allow qualified homeowners to access a portion of their home equity while continuing to live in their home as their principal residence.
Unlike a traditional mortgage, a HECM generally does not require monthly mortgage payments toward principal and interest. Instead, the loan balance typically increases over time as interest and applicable charges are added. The homeowner remains responsible for property taxes, homeowners insurance, maintenance, and other loan requirements.
How Does A HECM Loan Work?
A HECM allows an eligible homeowner to convert part of the equity in a qualifying home into loan proceeds. The amount available is based on several factors, including the borrower’s age, the home’s value, current interest rates, and applicable FHA requirements.
Depending on the selected HECM structure, proceeds may be available through:
- A lump-sum payment
- Monthly payments
- A line of credit
- A combination of available options
The specific amount and payment structure depend on the borrower’s circumstances and the HECM requirements in effect at the time of the loan.
What Are The Basic HECM Requirements?
To qualify for an FHA-insured HECM, borrowers generally must:
- Be age 62 or older
- Own the property outright or have sufficient equity to qualify
- Occupy the property as their principal residence
- Meet applicable financial eligibility requirements
- Complete required HECM counseling
- Maintain the property according to FHA and lender requirements
- Continue paying property taxes and homeowners insurance
Other requirements may apply based on the borrower’s financial situation and the property.
Eligible HECM Properties
Depending on FHA requirements, eligible property types may include:
- Single-family homes
- Two-to-four-unit properties where the borrower occupies one unit
- FHA-approved condominium units
- Certain manufactured homes that meet applicable requirements
Property eligibility must be reviewed as part of the HECM qualification process.
HECM Loan Proceeds
One of the key features of a HECM is the ability to access home equity without selling the property. Depending on the loan structure, proceeds may be used for a variety of personal financial purposes.
Potential uses may include:
- Paying off an existing mortgage
- Managing retirement expenses
- Making home improvements
- Covering healthcare or other personal costs
- Establishing a line of credit
- Providing additional financial flexibility
Borrowers should consider their complete financial circumstances before deciding how to use available proceeds.
HECM For Purchase
The HECM for Purchase program allows eligible homeowners to use HECM financing toward the purchase of a new principal residence.
This can combine the home purchase and reverse mortgage financing into a single transaction rather than purchasing the home first and obtaining a reverse mortgage later. Specific requirements apply, including borrower eligibility, property standards, required borrower funds, and occupancy requirements.
HECM Borrower Responsibilities
Although a HECM generally does not require monthly principal and interest payments, borrowers continue to have important responsibilities.
The homeowner must generally:
- Live in the property as the principal residence
- Pay property taxes when due
- Maintain homeowners insurance
- Keep the property properly maintained
- Meet all applicable HECM requirements
- Comply with the terms of the loan documents
Failure to satisfy these obligations may result in the loan becoming due.
HECM Costs And Fees
A HECM may involve several costs associated with obtaining and maintaining the loan. Depending on the transaction, these may include:
- FHA mortgage insurance premiums
- Origination charges
- Appraisal fees
- Title and settlement expenses
- Recording fees
- Counseling costs, where applicable
- Other lender or third-party charges
Some eligible costs may be financed through the HECM, subject to applicable program requirements.
HECM Counseling Requirement
Before obtaining an FHA-insured HECM, eligible borrowers are generally required to complete counseling with an independent HUD-approved housing counseling agency.
The counseling session is intended to help borrowers understand:
- How a HECM works
- The costs associated with the loan
- Borrower responsibilities
- Repayment requirements
- Available alternatives
- How the loan may affect heirs and future home equity
This step helps homeowners review the important features of the program before proceeding.
What Happens To The HECM Loan Later?
The HECM generally becomes due when the last surviving borrower dies, sells the home, or permanently moves out of the property, subject to the terms and requirements of the loan.
When the loan becomes due, the borrower or eligible heirs may have options depending on the circumstances. The repayment amount generally includes the outstanding loan balance, accrued interest, and applicable charges.
Common Questions About HECM Loans
Does A HECM Mean I Give Up Ownership Of My Home?
No. A HECM is a loan secured by the home. The homeowner generally retains ownership as long as the requirements of the loan are satisfied.
Are Monthly Mortgage Payments Required?
HECM borrowers generally do not make monthly principal and interest payments. However, they must continue meeting obligations such as property taxes, homeowners insurance, and property maintenance.
How Much Can I Borrow With A HECM?
The available amount depends on factors such as the borrower’s age, the value of the home, current interest rates, the HECM lending limit, and other FHA requirements.
Can I Pay Off My HECM Early?
Yes. A HECM can generally be paid off at any time without a prepayment penalty, subject to the terms of the specific loan.
Can My Heirs Inherit The Home?
Eligible heirs may have options to keep or sell the home when the HECM becomes due. The available options depend on the loan balance, property value, and applicable HECM requirements.
Learn More About HECM Loans
A HECM can be an important financial option for eligible homeowners who want to access home equity while continuing to live in their property. Understanding the program, costs, responsibilities, and repayment requirements is an important part of the process.
Michael S. Wayland, Jr., Senior Loan Officer with C2 Financial Corporation, can help you learn more about HECM financing and discuss the requirements that may apply to your circumstances.
Michael S. Wayland, Jr.
Senior Loan Officer
C2 Financial Corporation
NMLS #1835735 | Company NMLS #135622
12230 El Camino Real, Suite 100, San Diego, CA 92130
Phone: (614) 906-4355