Home Equity Conversion Mortgages (HECM) Program: What You Need to Know

The Home Equity Conversion Mortgages (HECM) program allows seniors to convert their home equity into cash. It is a government-insured program that enables homeowners to borrow against the equity in their homes. In this blog post, we will discuss everything you need to know about the HECM program.

Table of Contents

What is the HECM program?

HECM is the most popular type of reverse mortgage. It is also one of the most expensive. The HECM program has been around since the 1980s and is available to homeowners who are 62 years of age or older.

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To be eligible for a HECM, you must:

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-Own your home outright or have a low mortgage balance that can be paid off with the loan proceeds

-Occupy your home as your primary residence

-Have sufficient equity in your home

-Be a U.S. citizen or permanent resident alien

What are the benefits of a HECM loan?

A HECM loan allows seniors to stay in their homes and maintain ownership while receiving a stream of income. The loan does not have to be repaid until the borrower moves out of the house or dies. At that time, the loan balance plus interest and fees are due.

HECM loans also have certain protections for borrowers. For example, if the value of your home decreases, you will never owe more than the value of your home. Additionally, if you live in a community property state, your spouse may be able to remain in the home even after you pass away.

What are the drawbacks of a HECM loan?

The biggest drawback of a HECM loan is its cost. The fees associated with a HECM loan can add up, and they are typically financed by the loan itself. This means that the borrower ends up paying interest on the fees.

HECM loans also have strict eligibility requirements. Not everyone who wants a HECM loan will be able to get one.

How do I get a HECM loan?

If you think a HECM loan is right for you, the first step is to contact a HUD-approved HECM counselor. A counselor can help you understand the program and determine if you are eligible.

If you are eligible, you will need to select a HECM lender. There are many HECM lenders to choose from, so it is important to compare rates and fees before selecting one.

Once you have selected a lender, you will need to complete an application and provide documentation of your income, assets, and debts. The lender will then order a property appraisal to determine the value of your home.

If you are approved for a HECM loan, you will need to attend a counseling session with a HUD-approved counselor. This is required by law and is designed to help you understand the terms of your loan and your responsibilities as a borrower.

At closing, you will sign all of the loan documents and disbursement will occur. The loan proceeds will be paid to you in a lump sum, in monthly payments, or as a line of credit.

FAQs

Is HECM the same as a reverse mortgage?

HECM is the most popular type of reverse mortgage, but it is not the only type. There are other types of reverse mortgages that may be a better fit for your situation.

How much can I borrow with a HECM loan?

The amount you can borrow with a HECM loan depends on your age, the value of your home, and interest rates.

Can I get a HECM loan if I have bad credit?

There is no minimum credit score required to qualify for a HECM loan. However, your interest rate may be higher if you have bad credit.

What are my repayment options?

You do not have to make monthly payments on a HECM loan as long as you live in your home and maintain it as your primary residence. The loan balance plus interest and fees will be due when you sell your home, move out of your home, or die.

If you choose to make monthly payments, you can do so for as long as you want. You can also make partial prepayments on the loan without penalty.

What if I need to sell my house?

If you need to sell your house, you can do so at any time. You will only owe the loan balance plus interest and fees. If the sales proceeds are not enough to cover the loan balance, HUD will pay the difference.

What if I die?

If you die, your heirs will have the option to repay the loan or sell your home. If the sales proceeds are not enough to cover the loan balance, HUD will pay the difference.

Closing thoughts

The HECM program can be a great way for seniors to stay in their homes and receive a stream of income. However, it is important to understand the costs and requirements of the program before signing up for a loan. A HUD-approved counselor can help you determine if a HECM loan is right for you.

If you are considering a HECM loan, be sure to compare rates and fees from multiple lenders before selecting one. And be sure to attend a mandatory counseling session to understand the terms of your loan and your responsibilities as a borrower.

Have you ever taken out a HECM loan? What was your experience like? Share your story in the comments below.