The FHA Home Equity Conversion Mortgage (HECM) is the most popular form of reverse mortgage by far.  This is primarily due to the multiple layers of protection for the borrower, lender, and heirs that are rolled into the terms of a HECM.  HECMs can even be used to purchase a new property with no additional monthly payments (with stricter requirements).  And unlike most forward loans, income and credit requirements are very relaxed, as monthly mortgage payments are not an aspect of a reverse mortgage.  Income requirements primarily focus on your ability to pay your property taxes, homeowner's insurance, and any HOA dues.  

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Let's break this program down.

 

Similar to forward mortgages such as conventional and FHA home loans, HECMs do have an upper limit for total financing.  A qualified reverse lending specialist at HP Mortgage can inform you of what your unique financing limit will be upon reviewal of application.

This limit is determined by the following metrics:

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• The age of the youngest borrower or eligible non-borrowing spouse

• Current interest rate

• Lesser of the following values:

  • Appraised value of the subject property​

  • The HECM FHA mortgage limit of $970,800 (as of 2022)

  • The sales price (only applicable for HECM Purchase Loans)

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Similar to the FHA purchase loan, a forward mortgage, the HECM does require mortgage insurance, one initial fee of 2% of the loan amount, and a recurring annual fee for 0.5% of the remaining mortgage balance at that time. 

 

However, similarly with the FHA forward mortgage, the HECM's mortgage insurance ensures that a critically important aspect of the program remains in effect: the program's status as a non-recourse loan.  Through the application of mortgage insurance, you are ensuring that no matter how large your reverse mortgage debt grows, even if it exceeds your home's value (for example, if the housing market drops severely), you nor your family will ever be required to repay more than the lesser of the loan or home value.  The lender will never be able to seek additional repayment outside the original collateral.

 

The HECM is only required to be repaid in the event of the following occurrences:

• The borrower passes away

• The borrower decides to permanently move out of the home

• The borrower decides to sell the home

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In the event that the heirs receiving a property with a HECM reverse program wish to keep the property rather than sell it, qualified borrowers among the heirs may choose to refinance the program into a forward mortgage.  

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IMPORTANT

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Utilizing a HECM is a decision that carries significant gravity.  At HP Mortgage, our primary goal is to ensure our clients make the most informed decision always.  Though it may absolutely help you retire in financial security, we urge you to perform the following actions before committing to a reverse mortgage of any kind:

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• Fully assess your finances to ensure you never lapse on making timely insurance and property tax payments.

• Speak to your immediate family, especially your heirs and your spouse if applicable, and inform them of the possibility of a reverse mortgage on the property to avoid any complications in the future.

• Account for the needs of your spouse.  A non-borrowing spouse may not be able to reside in the home after the passing or relocation of the primary borrower unless they meet the eligibility requirements of the Department of Housing and Urban Development (HUD).  You can read HUD guidelines for spouse eligibility here.

• You will also be required to present proof of counseling with a certified HUD counselor who will educate you on the HECM program.

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