Reverse Mortgage Alternatives
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FHA HECM Loans

FHA HECM Loans and what they do

The most common reverse mortgage loan is the FHA HECM loan. This tends to be cheaper than those offered by privately insured companies, provide the largest loan advances of any reverse mortgage, and can give you the most choices in how the loan is paid to you. HECM loans are offered in all 50 states, the District of Columbia, and Puerto Rico.

To be eligible for an HECM loan (according to AARP):

  • You, and any other owners of your home must be age 62 and over, live in your home as your primary residence, and be up to date on any federal debt.
  • Your home must be a single family residence in a 1 to 4 unit dwelling, or part of a planned unit development (PUD) or HUD-approved condominium. Most mobile homes are not eligible.
  • Your home must meet HUD’s minimum propery standards, but you can use the HECM to pay for repairs that may be required.
  • You must discuss the program with a HUD approved counseling agency.

HECM Cash Advance Choices

HECM Loans generally offer the most choices for how you take your loan payment. You can choose between:

  • Single lump sum
  • “Creditline” account of a specific amount you control.
  • Monthly cash advance for a specific period of time or as long as you live in your home.
  • A combination of these options.

How much money can you get

The amount of cash you can get from an HECM loan depends on your age, current interest rates, and your homes value. The older you are, the more cash you can get.

Note that if you have a home that is valued greater than $417,000 (subject to change every year), then the limit on the amount of cash you can get is based on $417,000 rather than the appraised value of your home. If this is the case, you may want to explore options for a Jumbo reverse mortgage loan which is not provided in the HECM program.

Why HECM can be the best choice

One of the best features of an HECM loan is that its creditline grows larger over time. For example, if you have a credit line of $100,000 and you withdraw $20,000 you would have $80,000 left. However, if you did not withdraw any more money until one year later, the $80,000 left would grow by the total interest rate being charged on your loan balance. If your rate was 6%, you would have $84,800 in your creditline instead of $80,000. Not bad! This applies as long as you have a balance left in your creditline and have not drawn it all.