HECM: What is a Home Equity Conversion Mortgage?

A Home Equity Conversion Mortgage is a type of reverse mortgage that is insured by the Federal Housing Administration, or FHA. HECM loans, like those offered by GoodLife Home Loans, are a way for retirees to add cash flow to their retirement, which can be spent on expenses like medical costs, travel, hobbies, or home repairs. 

  • What does HECM stand for? Home Equity Conversion Mortgage

HECM loans have favorable terms and rates thanks to their federally-insured status, making them an attractive option for retirees who own equity in their homes. 

How does a Home Equity Conversion Mortgage (HECM) work?

HECM loans allow retired homeowners to tap into their home equity as a way to add income to their retirement portfolio. 

Home equity is the portion of a home’s value that the homeowner actually owns, as opposed to the portion of the value still held by their mortgage lender. Homeowners who would prefer to keep living in their homes but want to use the value they have accrued in the property often struggle to choose whether to stay in place, or sell and use their equity. 

A HECM allows homeowners to tap into their equity while they continue to live in the home, making it a great option for retirees who wish to stay close to family or continue living in the home they’ve built over the years. HECM loans only become due and payable after a maturation event, such as the death of the borrower, or their moving out of the home. 

At that point, the borrower or their heirs can decide whether to sell the home to repay the debt, or to pay it back directly, if they wish to keep the home. When the loan becomes payable, borrowers owe either the value of the loan or 95% of the appraised value of the home — whichever is less. 

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Who is eligible for a HECM?

In order to qualify for a reverse mortgage, a borrower must meet certain eligibility criteria. These include:

  • Borrowers must be at least 62 years old.
  • Borrowers must own substantial equity in their home.
  • Borrowers are required to live in the property as their primary residence.
  • Before borrowing, you must attend a HUD-approved counseling session.
  • Maintain FHA property standards throughout the period of the loan.
  • Stay current on financial obligations such as property tax and mortgage insurance.

Additionally, not all homes are eligible for a HECM loan. Homes over certain values, multi-unit complexes, and non-residential properties may not be considered for a reverse mortgage loan. For a full explanation of the qualifications for a HECM, be sure to visit our reverse mortgage eligibility page.

You can also learn more about HECM loans by downloading our free reverse mortgage guide, or start your reverse mortgage journey by speaking with one of our Reverse Mortgage Specialists

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