FHA's Home Equity Conversion Mortgage Program Summary: The Home Equity Conversion Mortgage (HECM) program enables older homeowners to withdraw some of the equity in their home in the form of monthly payments for life or a fixed term, or in a lump sum, or through a line of credit. In addition, the HECM mortgage can be used to purchase a primary home when the borrower is 62 years of age or older and is able to use cash in hand to pay the difference between the reverse mortgage and the sales price plus closing costs for the property. Purpose: To be eligible for a HECM mortgage, current homeowners must be 62 years of age or older, own their home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse mortgage. The home must be their principal residence. In addition, the HECM can be used to purchase a primary home if the borrower is able to use cash in hand to pay the difference between the HECM and the sales price and closing costs for the property. Because older persons can be vulnerable to fraudulent practices, the program requires that persons receive free reverse mortgage housing counseling from a HUD approved reverse mortgage counseling agency before applying for a reverse mortgage. FHA insures HECM loans to protect lenders against loss if amounts withdrawn exceed equity when the property is sold. Type of Assistance: HECM can be used by homeowners who are 62 years of age and older. The total income that an owner can receive through HECM is the maximum claim amount, which is calculated with a formula including the age of the owner(s), the interest rate, and the value of the home. Borrowers may choose one of five payment options: (1) tenure, which gives the borrower a monthly payment from the lender for as long as the borrower lives and continues to occupy the home as a principal residence; (2) term, which gives the borrower monthly payments for a fixed period selected by the borrower; (3) line of credit, which allows the borrower to make withdrawals up to a maximum amount, at times and in amounts of the borrower's choosing; (4) modified tenure, which combines the tenure option with a line of credit; and (5) modified term, which combines the term option with a line of credit. The borrower remains the owner of the home and may sell it and move at any time, keeping the sales proceeds that exceed the mortgage balance. A borrower cannot be forced to sell the home to pay off the mortgage, even if the mortgage balance grows to exceed the value of the property. A HECM loan need not be repaid until the borrower moves, sells, or dies. When the loan must be paid, if it exceeds th5 value of the property, the borrower (or the heirs) will owe no more than the value of the property, if they sell the property to repay the loan. Two mortgage insurance premiums are collected to pay for HECM: an upfront premium (2 percent of the home's value), and a monthly premium (which equals 0.5 percent per year of the mortgage balance). A lender can charge an origination fee up to $2,500 if the home's appraised value is less than $125,000. If the home is valued at more than $125,000, lenders can charge 2% of the first $200,000 of the home's value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000. All HECM borrowers are required to complete reverse mortgage counseling through a HUD approved housing counseling agency. Eligible Customers: To be eligible for HECM, a homeowner must (1) be 62 years of age or older, (2) have a low outstanding mortgage balance or own their home free and clear, and (3) have received HUD approved reverse mortgage counseling to learn about the program. An eligible property must be a principal residence, but it can be a single family residence, a one to four -unit building with one unit occupied by the borrower, a manufactured home, a unit in an FHA approved condominium, or a unit in a planned unit development. The property must meet FHA standards, but the owner can pay for repairs using the reverse mortgage. Application: Borrowers who meet the eligibility criteria above can apply through an FHA HECM approved lending institution. Borrowers can locate FHA approved lenders through HUD's searchable listing. Top Ten Things to Know if You're Interested in a Reverse Mortgage Reverse mortgages are becoming popular in America. HUD's Federal Housing Administration (FHA) created one of the first. The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements and more. You can receive free information about reverse mortgages in general by calling AARP toll free at (800) 209-8085. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you! 1. What is a reverse mortgage? A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. FHA's HECM provides these benefits. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing. 2. Can I qualify for FHA's HECM reverse mortgage? To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home. You are further required to receive consumer information from an approved HECM counselor prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA-approved lenders within your area. 3. Can I apply if I didn't buy my present house with FHA mortgage insurance? Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new FHA HECM will be FHA-insured. 4. What types of homes are eligible? To be eligible for the FHA HECM, your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible. 5. What's the difference between a reverse mortgage and a bank home equity loan? With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities. With an FHA HECM you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment." 6. Can the lender take my home away if I outlive the loan? No. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than the value of your home at the time you or your heirs sell the home. 7. Will I still have an estate that I can leave to my heirs? When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. 8. How much money can I get from my home? The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You can use an online calculator like the one on the AARP website to get an idea of what you may be able to borrow. 9. Should I use an estate planning service to find a reverse mortgage? FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA lender. FHA provides this information free, and HUD-approved housing counseling agencies are available for free or at very low cost, to provide information, counseling, and a free referral to a list of FHA-approved lenders. Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you. 10. How do I receive my payments? You have five options: Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence. Term - equal monthly payments for a fixed period of months selected. Line of Credit - unscheduled payments or installments, at times and in amounts of your choosing until the line of credit is exhausted. Modified Tenure - combination of line of credit with monthly payments for as long as you remain in the home. Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower. 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