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Have you heard about the Home Equity Conversion Mortgage (HECM)? Depending on your situation HECMs (pronounced “heck-cums”) can be a useful tool or a waste of hard-earned money. This article looks at what HECMs are, and what questions you should ask yourself before buying into one.
So what is a reverse mortgage?
HECM is the Federal Housing Administration’s (FHA) reverse mortgage program. A reverse mortgage is a rather exotic home loan that allows you to borrow money on the equity of your home without having to make any payments until you either sell the house or die. Equity is the difference between the current value of your home and what you owe on it. Reverse mortgages allow seniors to supplement their income, pay for medical expenses and make home improvements. They are suitable for homeowners who have a large equity on their home, need an income or cash, but also want to continue living in their home.
Seniors can also use reverse mortgages to buy their primary residence if the reverse mortgage pays for the entire cost of the home or they can pay for the difference with cash in hand (without getting another loan). The life expectancy of Americans is around 80 years old and is increasing. This is undoubtedly a good thing. However, seniors are finding their income is reduced from when they are in their 60s to when they reach their mid 70s. Reverse mortgages can be just what they need if they do not qualify for a conventional loan.
Who qualifies for a HECM?
To qualify for a HECM you must be 62 years old or over, own your home outright (or a very low mortgage balance) and live in the home as your main residence. You do not need to have a FHA mortgage or have used a FHA mortgage in the past to buy your home. However, if you do decide to purchase a HECM, it will be insured by the FHA. Only single family homes or a 1 to 4 unit home with at least one unit occupied by the HECM borrower qualify for a HECM.
Before you consider a HECM…
HECM are expensive when compared with other conventional loans like second mortgages, Home Equity Loans and Lines of Credit. You should ask for expert and unbiased information before agreeing to a HECM. The Housing and Urban Development Department provides seniors with free HECM counseling. Phone (800) 569-4287 to talk to qualified HECM counselor.
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