A reverse mortgage is a loan that uses your home as a collateral without a required monthly principal or interest payment, and is synonymous with a Home Equity Conversion Mortgage (HECM). This means that you can use the home’s equity without taking on anywhere between 15 and 30-years’ worth of mortgage payments. You defer the monthly interest payments until you sell the home, no longer occupy it as a primary residence, or pass away.
The term “reverse” is used for this type of mortgage because the payment stream is often reversed. With a home equity loan or a traditional mortgage, you make monthly payments to a lender. As long as the reverse mortgage is outstanding, you own your home.
What Is a HECM Reverse Mortgage Loan?
Currently the Home Equity Conversion Mortgage or HECM makes up the vast majority of reverse mortgages being taken. Private lenders issue the mortgages, and the Federal Housing Administration (FHA) insures them. The Federal Housing Administration or FHA is part of the Department of Housing and Urban Development (HUD) Office of Housing.
Am I Eligible for a HECM Loan Program?
You must meet all of the follow criteria to be eligible for a HECM reverse mortgage:
- Age. You must be 62 years old or older at the time of closing. Are you 62 years old but have a spouse who is under 62? You must discuss this scenario with your HECM adviser in order to be aware of what happens in the event that your spouse outlives you.
- Residence. You must own a single family residence, FHA-approved condominium, manufactured home (click for requirements), townhouse, or up to a four-unit property as your primary residence. A mobile home lacking a permanent foundation is not eligible for reverse mortgage financing.
- Equity. You must have equity in your property. There is no static equity percentage versus debt figure. However, you must have a minimum of 35 percent equity or more. This figure is dependent upon your age.
How Can I Obtain an HECM Reverse Mortgage?
For most states, we recommendation that clients complete the reverse mortgage process as follows:
- Loan application. After you have given basic information online or over the phone, we draft an application for you. Once you have signed the application and given us the necessary documents, you’re ready to complete counseling.
- HUD approved counseling. Depending on your location, you may have access to both in person and over the phone counseling through a local or national agency. It is up to you to decide which method you would prefer and which agency you would like to use. Once you have received a copy of your counseling certificate in the mail, sign and date it and send it to us in the mail. As soon as we have the certificate, we can move onto the appraisal.
- Appraisal. We place an order for the appraisal. The appraiser will contact you directly to set up an appointment. Typically the appraisal management company will want payment via credit card or eCheck. Once we have the finished appraisal, we will send a copy of it to you along with your updated loan information.
- Closing. Generally we schedule the closing at your home or at the title company’s office. We will select a time that is convenient for you. Be prepared to provide appropriate identification and a voided check at the closing.
What Is the Typical Time Frame for Obtaining a HECM Loan Program?
The length of time to close a reverse mortgage primarily depends on whether or not you have already completed reverse mortgage counseling (by an independent, HUD-approved agency). If you complete counseling before you apply for a reverse mortgage, you can close within a month’s time. If you apply for a mortgage before you receive counseling, the process can take as long as five or six weeks.
How Can I Use My HECM loan program Funds?
Reverse mortgages originally came about to help senior citizens age 62 and older keep up with their daily living expenses. However, you do not need to feel limited to this option. Many people use their reverse mortgage funds for one or more of the following purposes:
- Eliminating existing mortgage
- Paying off outstanding debts (i.e. car loan, credit card)
- Making home repairs and renovations
- Paying off medical bills or funding long-term health care and prescription medications
- Planning an estate to leave funds for heirs
- Spending on luxury items (i.e. concert tickets, vacations)
- Extending retirement assets
Is your home in need of major physical repairs (i.e. new windows, substantial plumbing work)? If so, in order to qualify for a reverse mortgage, a portion of the funds will be designated for this purpose.
Are you a senior looking for an HECM loan program? If so, learn more by downloading our comprehensive guide for seniors, and then speak to our reverse mortgage specialists and learn how to make the most of your home equity.