HUD FHA Reverse Mortgage for Seniors (HECM) (2024)

FAQs

What is the downside of an HECM loan? ›

You might lose government aid: While an HECM isn't counted as income for tax reasons, the money you receive from your HECM can affect your ability to qualify for Supplemental Security Income or Medicaid. Carefully consider the effects of losing your benefits if you were to take out an HECM.

The HECM is the FHA's reverse mortgage program that enables you to withdraw a portion of your home's equity to use for home maintenance, repairs, or general living expenses.

And while there is no minimum credit score required on the Home Equity Conversion Mortgage (HECM), a credit check will be ordered to calculate residual income and confirm whether you have any federal tax liens or delinquent debts that may affect loan eligibility.

Television commercials for reverse mortgages commonly extol the benefits of a guaranteed tax-free income for homeowners aged 62 and older. However, reverse mortgages can be expensive and, in some cases, put a person's biggest asset—their home—at risk.

A big downside to reverse mortgages is the loss of home equity. Because you're not paying down your reverse mortgage balance, you'll make less profit when you sell, or limit your borrowing power if you need a new loan. You'll pay high upfront fees.

HECM for Purchase: Required down payment between approximately 29% and 63% of the purchase price, depending on buyer's age or Eligible Non-Borrowing Spouse's age, if applicable. (This range assumes closing costs will be financed.) The rest of the funds for purchase come from the HECM loan.

The key differences between a HECM and Reverse Mortgages are: Reverse mortgages are available to consumers who are 55 and older in most states, while HECMs are only available if you are 62 or older. HECMs have more flexibility in their payout options while reverse mortgages only offer a single-lump sum in most cases.

Most reverse mortgage loans are Home Equity Conversion Mortgages (HECMs). A HECM must be paid off when the last surviving borrower or Eligible Non-Borrowing Spouse: Dies. Sells their home, or.

It is worth mentioning that all HECMs are subject to the 60% utilization rule. This limits the amount any reverse mortgage borrower can take in the first year to the higher of 60% of the principal limit or mandatory obligations like an existing mortgage plus 10% of the loan amount.

Can you run out of money with a reverse mortgage? ›

If borrowers run out of available funds, they can stay in the house, provided they continue to live in and maintain it and stay current on required taxes and insurance. In this sense, they will not have outlived the mortgage, but they will have outlived their ability to borrow more money from it.

We're kicking off our first article in our 2024 blog series with welcomed good news: The Federal Housing Administration (FHA) increased the maximum claim amount on the Home Equity Conversion Mortgage (HECM), the only type of reverse mortgage loan it insures, from $1,089,300 (2023) to $1,149,825 (2024).

Borrower Requirements

Be 62 years of age or older. Own the property outright or paid-down a considerable amount. Occupy the property as your principal residence. Not be delinquent on any federal debt.

Reverse mortgages that are backed by the federal government are called home equity conversion mortgages (HECMs). Different types of income—including earnings from employment, disability benefits, and Social Security benefits—can determine a homeowner's ability to pay reverse mortgage-related costs.

Some reverse mortgages may be more expensive than traditional home loans, especially for things you pay upfront, like closing costs and origination fees. That's important to consider if you plan to stay in your home for just a short time or to borrow a small amount.

Suze Orman's opinion on reverse mortgages

She has spoken out against these loans on numerous occasions, warning that they can be a risky financial decision for many older Americans. One of Suze's main concerns with reverse mortgages is that they can be incredibly expensive.

Payout: HECMs often have more flexibility in payout options, such as a line of credit. Reverse mortgages often pay out in a lump sum. Eligibility: Since HECMs are insured by the FHA, they typically have more stringent eligibility requirements.

You'll likely pay thousands – or tens of thousands – in fees and insurance costs at closing and during the life of the loan, so an HECM might not be a good choice if you're moving soon, you can't manage money or you haven't planned effectively for retirement.