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The FHA’s version of the reverse mortgage, known as the FHA Home Equity Conversion Mortgage (HECM), is available to qualified borrowers who meet the FHA’s age requirements, occupancy requirements, and more. Reverse mortgages can be a bit more complex than a typical refinance loan.

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Common Questions About FHA Reverse Mortgages

Common Questions About FHA Reverse Mortgages
July 23, 2016 - Are you interested in your reverse mortgage loan options? The FHA Reverse Mortgage, known as the FHA Home Equity Conversion Mortgage (HECM), is available to qualified borrowers who meet the FHA’s age requirements, occupancy requirements, and more. Reverse mortgages can be a bit more complex than a typical refinance loan, but knowing some facts going into the application process will make the process easier to understand.

Who may apply for an FHA HECM / Reverse Mortgage loan?

FHA reverse mortgages are only approved for borrowers aged 62 or older who either own their property outright or are very close to doing so. Proof of the current status of your mortgage (paid in full or documentation showing how many payments remain)  will be required. FHA HECM loan applicants will be required to certify that the home securing the reverse mortgage is the primary residence and not a vacation home or seasonal home. That is an important aspect to remember--HECM loans have an occupancy requirement.

What is the occupancy requirement for an FHA HECM?

HECM loans can only be made for primary residences. The HECM borrower must use the home secured with the HECM as the primary residence much in the same way that borrowers applying for new purchase FHA mortgages must occupy the home. Unlike a new purchase FHA mortgage (where the borrower must occupy the home as the primary residence “for at least one year”),  FHA reverse mortgages require the borrower to use the property as the primary residence for the lifetime of the loan.

How does an FHA reverse mortgage work?

Reverse mortgages feature no monthly mortgage payment for the borrower, and cash back to the borrower depending on the terms of your loan. If you qualify and are approved for the reverse mortgage, you may be eligible for either a single payout (for fixed interest rate HECM loans) or a range of options including multiple payments for those who choose an adjustable rate HECM.

As previously mentioned, the borrower or borrower’s estate does not repay the loan until the property is sold or the borrower dies. The rules of the FHA reverse mortgage program state that the loan can be declared “due in full” if the borrower does not meet certain requirements including the previously mentioned occupancy rules and others which we’ll address below.

What is required to be in good standing on a HECM loan and avoid it being declared due in full?

The borrower must agree to specific terms of the loan agreement, and also FHA loan rules which require the borrower to remain in the home secured with the HECM loan as the primary residence, stay current on property tax obligations, be responsible for upkeep and maintenance of the property, etc. HECM loan counseling is required as a condition of loan approval for all parties to be obligated on the loan-the borrower(s) must be fully informed as to their rights and responsibilities under the FHA HECM loan program. Additionally, for HECM loans that are approved, an escrow account may be required to pay property taxes and hazard insurance where applicable.

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