Homeowners that are near or at retirement age are usually in need of additional income, to take care of bills such as healthcare, home renovation or complement their Social Security. People in these circumstances usually apply for a Home Equity Conversion Mortgage (HECM) to have a more convenient lifestyle as they grow older.
HECM is Federal Housing Administration's (FHA) reverse mortgage plan which allows you to draw some of the equity in your house. You select how you need to get your funds, whether in a credit line or a fixed monthly sum or a combination of both. It is a program specifically designed for seniors allowing the conversion of their home equity to cash. The amount that can be borrowed is to a large extent dependent on the appraised value of the home, and it is dependent on FHA control and the borrower’s age which must not be less than 62 years old.
A reverse mortgage is different from the regular mortgage that requires the borrower to make monthly payments to the lender; in that, the lender pays an amount depending on the age of the borrower, his or her home equity, the compulsory private mortgage insurance premium, and prevailing interest rates. In other words, the amount a borrower receives is dependent on his or her age, the value of the house and value owed against it. Therefore, the borrower receives more money if he or she is older, and the estimated value of the house is high, and there is less amount owed on it.
HECM Refnance and Purchase
Are the most common type of reverse mortgage. It is federally funded and supported by the U.S. Department of Housing and Urban Development (HUD). Even though certain non-profit agencies and private companies offer reverse mortgage, they control how the money can be used.
HECM is designed to make life comfortable for retired people who have a home of a reasonable value to have access to cash as they need it. It is designed specifically for seniors. However, certain conditions must be met to determine eligibility. Once the eligibility criteria are met, the applicant can contact any FHA-approved lender who will discuss other requirements of HECM program apart from the basic requirements listed below.
Eligibility Requirements for Purchase and Reverse
- The age of the applicant must be less than 62 years.
- The applicant must own the home outright or have little mortgage remaining.
- The home must be the primary residence of the applicant.
- The applicant should not have any unpaid federal debt.
- The applicant must have the financial resources to pay the mandatory property taxes, insurance, and maintain the home during the term of the loan.
- The applicant must attend HUD-approved counseling session
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