January 21, 2016
One commonly asked question about the FHA home loan program is whether or not FHA insures or guarantees reverse mortgages.
The FHA does have a reverse mortgage loan program, called the Home Equity Conversion Mortgage or HECM for short. Who qualifies for an FHA HECM loan and what are the basic ground rules?
To start, it’s very important to understand the difference between an FHA HECM loan and traditional refinancing. According to the FHA official site, “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 you built up over years of making mortgage payments can be paid to you.”
FHA HECM loans are not like standard home equity loan or second mortgage for one very important reason. According to FHA.gov, “HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. 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.”
Who can apply for an FHA 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, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.”
The FHA reverse mortgage program allows a HECM loan on property even if it was not purchased with an FHA mortgage. That means that if you have paid off or are close to paying off a traditional mortgage or refinance loan that is conventional, VA or otherwise non-FHA guaranteed, you can still apply if you meet the age requirements and other criteria.
Only single family homes or a multi-unit with a maximum of four units (one must be occupied by the borrower) are eligible for FHA reverse mortgages. FHA HECM loans are not available for investment properties and there is a residency requirement for the home after the HECM loan has closed.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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