A Home Equity Conversion Mortgage (HECM) is the formal name of the federally - administered loan that many commonly refer to as the 'reverse mortgage' loan. However, it is recently also referred to as an ‘Equity Access’ mortgage.
Administered by H.U.D. (The Department of Housing & Urban Development), it’s designed to help qualified homeowners 62 and older enhance their cash flow during retirement. For higher-valued properties (usually over $800,000 in value) there are private jumbo reverse mortgages, also known as ‘Jumbo Portfolio’ mortgages, which are not insured by FHA. Jumbo portfolio mortgage loans are unique and their features and requirements vary by the lender offering them and often are available to you beginning at 60 years of age.
HOW DO I QUALIFY?
To be eligible you must be at least 62 years old, 60 for a jumbo, and own your home. You must have enough equity in the house to pay off any outstanding balances, usually we recommend at least 50%, and the home must be occupied as your principal residence. Minimal income and credit standards must also be met.
Imagine living in your home without a traditional monthly mortgage payment *, or instead enjoying monthly loan proceeds from the years you’ve invested in your home. Enjoy access to part of the value of your home and the freedom and comfort of the home you’ve known for so many years.
It’s your home, now you can put it to work for you.
Contrary to common belief, borrowers retain ownership and title to their home*. It’s yours just as it was before, however now you may benefit from the equity that’s been building in your home for years. In addition, HECM (Home Equity Conversion Mortgage) will give you peace of mind since it is insured by the Federal Housing Administration (FHA) .
With an ‘Equity Access’ mortgage on your primary residence, repayment is not due until the home is sold, the last borrower passes away or permanently leaves the home*. Borrowers also must keep the home in good condition, pay property taxes and keep homeowner’s insurance coverage to avoid the loan becoming due and payable.
Also as required by government mandate and for your protection, you are required to obtain counseling (from an independent HUD-approved third-party counselor) prior to incurring any costs associated with the loan (other than the counseling fee).
In regards to when your heirs are deciding what to do with their inherited home you left them, they may choose to keep the home by paying off the current outstanding loan balance or if the mortgage is more than the current value, then they would pay 95% of the home's appraised value, less customary closing costs and real estate commissions.
While proceeds are usually not subject to personal income taxation, borrowers should seek tax advice on how proceeds may affect government needs-based programs such as Medicaid and Medi-Cal.*
- Borrowers maintain title and ownership of their home.*
- It is a specialized loan for homeowners 62 years or older, jumbo 60 +.
- It allows homeowners access to a portion of the equity of their home.
- This is only eligible for the borrower’s primary or principal residence.
- HUD counseling (from an independent HUD-approved third-party counselor) is required prior to the borrower incurring any costs associated with the loan.
- It is not a government grant, but a loan that is repaid in the future when the home is sold or the last borrower dies or permanently leaves their residence.
- It is secured by a mortgage on the home and failure to comply with loan terms could result in foreclosure.
- Proceeds are not subject to personal income taxation, but borrowers should seek tax advice on how proceeds may affect government needs-based programs such as Medicaid. *