The Home Equity Conversion Mortgage (HECM) is a Federal Housing Administration (FHA) reverse mortgage program. A reverse mortgage is a home loan that is unique as it allows you to convert part of your home equity into money. The accumulated equity over the years of your home mortgage payment can be paid to you. There are two types of programs available namely the Saver and the Standard. They are similar in many ways apart from the HECM saver objective to cut cost over HECM standard program.
HECM is a safe program that gives the senior citizens a greater security financially. Such seniors can use it to meet various financial obligations. Such obligations may include unexpected medical expenses, social security, and consolidation of debts or to make home improvements among other uses.
This program does not require you to make any repayments until you no longer use the home as your principal residence or until you are unable to meet the mortgage obligations. You could also use it to buy a primary home. You can do this so long as you pay by cash any difference between the sales price and the closing costs for the residence being purchased.
To qualify for this type of loan, one should be a homeowner aged 62 years and above. He should also be the outright owner of the home or have a mortgage balance that is low such that it can be paid off at the closing using proceeds from the reverse loan. The borrower must also live in the home.
The eligible homes should be single family homes or 1 to 4 units. If they are units, one unit must be occupied by the borrower. Manufactured homes and condominiums approved by HUD are eligible too as long as they meet the FHA requirements.
The loan has to be repaid fully when you sell the home or when you die. It also becomes due and repayable if you fail to pay home insurance, property taxes or violate any other obligations. If you move to a different principal residence you have to repay the loan. If you fail to live in the residence for 12 continuous months or if you do not make the necessary repairs and allow deterioration of the property then the loan may also become due and repayable.
The main difference between the Saver plan and the Standard Plan is that the Saver Plan has lower upfront fees. Its initial mortgage insurance premium is. 01% of the FHA maximum claim amount where with the Standard Plan the home equity should be more than 30% for you to qualify for a loan. The initial mortgage insurance premium is 2% of FHA maximum claims amounts. This increases the amount of money you require to close the transaction.
The HECM saver objective to cut cost over HECM Standard comes with one major drawback. Due to these lower upfront fees the amount of money you can borrow is less than what you can borrow through the Standard program. Both programs offer you an easy way of borrowing from your home as long as you maintain your property taxes, get insurance and make the home your primary residence. When reviewing the final decision of which program to choose rests entirely on you and your reverse mortgage advisor.