Home Equity Conversion Mortgage (HECM)
Borrowers who use a Traditional Home Equity Conversion Mortgage (HECM) may convert the equity in their primary residence into a lump sum or monthly payout, or payoff a forward mortgage and save the monthly repayments, or do a combination of all these strategies
- Permits a consumer(s) 62 years and older to borrow between 50% and 75% (age and interest rates dependent) of the value of the primary residence (to a maximum home value of $636,150)
- Allows access to the funds from a line of credit in a variety of ways
- Let’s the borrower have the option to make or not make (for the life of the loan) any periodic mortgage repayment, with no impact on credit score
- Has its funds availability insured by the federal government
- Grows the unused line of credit grow annually at the effective borrowing cost
- Allows the borrower(s) to live in the home until the last borrower has left the house or passed away
- Always allows the borrower(s) to own the home and leave the home and any equity left in it to their heirs
- Never makes the borrower(s) owe more on the home than what it is worth, regardless of the size of the HECM. It’s a fully non-recourse loan.
- Permit the borrower(s) to convert the line of credit into federally guaranteed monthly cash flow that will pay until last borrower leaves the home
The primary obligation of the borrower is that they pay the annual property charges, which include property taxes, hazard and flood insurance, home owner association or condo dues and associated land leases and other similar expenses. Failure to do this, as with any home loan, might result in foreclosure.
How Does a Borrower Qualify for a HECM?
As a HECM borrower,you need to demonstrate (a) your willingness to meet your financial obligations (you don’t need a credit score, but making your property tax and insurance and your mortgage and instalment payments on time in last 12 – 24 months is a big indicator of willingness) and (b) your capacity (i.e. income or cash flow) to pay future property charges (the requirements are much less onerous than forward mortgage income requirements). Based on the following eligibility requirements, any homeowner age 62 or older can apply for a HECM.
- You must be at least 62 years old. (This applies to all co-owners listed on the home’s title)
- The home you are financing must be your primary residence and must meet FHA/HUD guidelines. Eligible properties are single-family homes and FHA- approved condominiums.
- You must have sufficient equity in the home to obtain a HECM. In general, depending on your age, you should expect to have between 25% and 50% of your current home value in equity. The percentage required declines as you get older.
- While you will not need to have a specific minimum credit score, and the income requirements are much lower in general than that required for a traditional forward mortgage, the lender will evaluate your past willingness to pay your obligations, especially property related items such as mortgages and property taxes, and they will evaluate your capacity to pay all your property and financial obligations in the future.
What are the HECM Advantages?
- Your home equity is converted into line of credit you can easily access as needed
- No required principal and interest payments over entire life of loan
- Can convert line of credit into federally guaranteed monthly cash flow that will pay until last borrower leaves home
- Government guaranteed availability of funds
- Optional repayment with no impact on credit score
- Line of credit grows annually if unused
- Borrowers or estate can never owe more on the line of credit than home is then currently worth. i.e. the loan is non-recourse.
Would you like to learn more?
The “Knowledge Base” has the answers to over 300+ questions you may have on the HECM product.
If you would like to know how much you potentially qualify for, and whether you possibly have adequate monthly cash flow, go to the HECM WIZARD and input your information.
If you would like to reach out and talk with me, fill out the information on Contact Me or email at st.john.bannon@JMCapGroup.com