Stewardship Capital

Reverse Mortgages and HECM Loans for Homeowners 62 and Older

A reverse mortgage lets some homeowners age 62 and older borrow against the equity in their home. The most common kind is the HECM, which is insured by the FHA. It is a real loan, not free money, and it comes with real duties. This page explains how it works in plain words, including what you still owe.

What is a reverse mortgage?

A reverse mortgage is a loan for homeowners who are at least 62. It lets you borrow against your home equity. Equity is the part of the home you own. With a regular mortgage, you make payments and your balance goes down. With a reverse mortgage, you are generally not required to make a monthly mortgage payment, but you still have other costs and duties, covered below. The balance usually grows over time because interest and fees are added to it.

What does HECM mean?

HECM stands for Home Equity Conversion Mortgage. It is the reverse mortgage program insured by the Federal Housing Administration (FHA). FHA insurance is not a gift to the borrower. A HECM is a loan, and it must be repaid.

Who can qualify for a HECM?

The borrower must be at least 62 years old. The home must be your main home, where you live most of the time. You need enough equity, and any existing mortgage is usually paid off with the loan funds. The home must also meet FHA property standards.

• Many single-family homes may work.
• Some two to four unit homes may work if you live in one unit.
• FHA-approved condos may work.
• Other property types may qualify. The rules vary, and Stephen confirms them on your file.

The lender also looks at your income, your credit history and how you have paid property bills in the past. This is called a financial assessment. If your spouse is under 62, tell Stephen early. How a younger spouse is listed on the loan can change what happens later.

What do I still have to pay on a reverse mortgage?

You still own the home, so you still owe property taxes, homeowner's insurance and upkeep. If your home has HOA dues or needs flood insurance, you owe those too. If you do not keep up with these, the loan can become due and you can lose your home to foreclosure. Staying current is part of the deal.

In some cases, part of the loan money is set aside to help pay taxes and insurance. Whether that applies depends on your file. There are also upfront costs, mortgage insurance charges and interest, and they add to the balance.

When does a reverse mortgage have to be repaid?

The loan becomes due when the last borrower no longer lives in the home as a main home. That can mean the home is sold, the borrower moves out for good, or the borrower passes away. It can also become due if taxes, insurance or upkeep are not kept up.

When the loan is due, the home is usually sold, or the family repays the loan. Heirs who want to keep the home can usually repay the balance or refinance. Time limits apply. A HECM is generally a non-recourse loan. That means heirs are not asked to repay more than the home's value when the home is sold to pay off the loan. Program rules apply, and Stephen explains how they work for your file.

What is HECM for Purchase?

HECM for Purchase lets a buyer who is 62 or older use a HECM to buy a different main home. The buyer pays a down payment from their own money. The HECM covers the rest.

It is not a no-money-down purchase. The down payment depends on the buyer, the home and the loan. The same duties apply after closing: taxes, insurance and upkeep. Realtors should know that the process includes counseling and an FHA appraisal, so the timeline needs room. Our Buy a Home page covers regular buying steps.

What is counseling, and why is it required?

Before you can move forward, you must meet with a HUD-approved counselor. The counselor is not the lender. They explain the costs, the risks and your other choices.

What are the other choices?

A reverse mortgage is not right for everyone. It uses up equity that you or your heirs may want later. Other choices include a HELOC, a Refinance, selling and moving to a smaller home, or a regular purchase loan. Stephen will walk through the choices with you.

This is not a quote, a commitment to lend or an offer of credit. Stephen Chakerian, NMLS #2193331 | Stewardship Capital, a team of Barrett Financial Group, L.L.C., NMLS #181106 | Equal Housing Opportunity.