Home Equity Conversion Mortgages (HECMs) were created to provide America's seniors with a steady income or lump-sum of cash as they age in-place in their current homes. However, HECMs are not without risk – to both senior homeowners and lenders. The U.S. Department of Housing and Urban Development (HUD) requires HECM-participating seniors to make timely home repairs and make payments on their property taxes, homeowner and mortgage insurance premiums. Seniors who could not comply have faced foreclosures and evictions. As a result, HUD is seeking new mortgage rules to better inform seniors of the risks.
New HUD Requirements on the Way
HECMs are available to seniors, age 62 or older, who make their home their primary residence. There are no requirements for income or credit rating to receive an HECM. But last year, HUD mandated a financial assessment to determine whether residents can make their taxes and insurance. Seniors now have the option of having those funds set aside from their lump-sum or monthly payments to foot the bill.
Under the proposed Federal safeguards, applicants will be required to receive credit counseling from a HECM counselor and lenders must disclose requirements in clear, understandable language. HUD also wants lenders to pay off remaining insurance premiums when the HECM is repaid or ownership is transferred.
HECMs: How They Work
Senior homeowners who have established equity in their houses and reside in them may apply for reverse mortgages. Payouts are in lump sums, monthly checks, or through a line of credit. Upon the death of the homeowner, the mortgage must be repaid in-full, typically from proceeds of the sale of the house. If the borrower must move into a nursing home or care facility, the mortgage must be repaid after they are away for 12 months. Recent changes in HUD rules now allow surviving spouses to stay in the home for the rest of their lives without having to repay the mortgage.
In order to qualify, seniors must own and reside in a single-family home or 2/4-unit home where they reside in one of the units. Eligible condominium projects must be approved by HUD and manufactured homes must comply with FHA requirements.
Applicants should determine whether they will remain in the house long enough to off-set costs (from $2,500 - $6,000) for the reverse mortgage which can include:
- Loan origination fee
- Servicing fee
- Title search
- Recording fees
- Mortgage premium insurance (PMI)
Is a HECM Right for You?
Some 41 percent of Americans aged 55-64 report that they have no savings for their retirement. For seniors who have equity in their home, a reverse mortgage or HECM line of credit may provide them with financial security for the rest of their lives.
LendingTree's Reverse Mortgage Calculator can estimate how much money consumers can receive in a reverse mortgage. Just type in your zip code, the type of property, your age, home value and amount remaining on the current mortgage and the calculator does the rest.
Reverse mortgage applications must only be made through an FHA-approved lender. Ready to apply? Get free offers from competing lenders, then choose whether you want a lump sum or monthly payment.