• Skip to main content
  • Skip to primary sidebar
  • Skip to footer
(877) 816-6706 PARTNER SITE CLIENT LOGIN
Search Icon

Smartfi Corporate

  • About Us
  • Clients
  • Contact Us
Calculators
Istock 1365094342 800x535

What Is a Home Equity Conversion Mortgage (HECM)?

August 12, 2022 by Josh Evink

If you’re looking for a time-efficient way to generate retirement income without selling your car, stocks, or bonds, a Home Equity Conversion Mortgage might be the right solution for you. As the cost of travel, elderly care, and home maintenance rise, more retirees and senior citizens across different states are signing up for Home Equity Conversion Mortgages.

In this article, our mortgage experts at Smartfi will explain why the Home Equity Conversion Mortgage (HECM) is the most popular approach to home equity borrowing for people who want to enjoy a comfortable retirement. We will also detail the eligibility requirements by every FHA-approved lender and whether it’s an effective strategy for refinancing your existing mortgage.

Home Equity Conversion Mortgage (HECM): What Does It Mean?

One of the most common questions our licensed loan officers receive from customers curious about reverse mortgages is “What does HECM stand for?” As we’ve mentioned above, whenever a lending company says something like, “HECM loans,” “HECM reverse mortgage,” or “HECM program,” they are referring to a type of home equity loan known in the financial market as the Home Equity Conversion Mortgage.

HECM reverse mortgages allow homeowners to borrow against their home equity, effectively providing them a steady stream of retirement income that they don’t have to pay back until they move out of their primary residence. Home equity loans can be more expensive than traditional mortgage loans, though they come with extensive safeguards for retirees. If you get a HECM, your lender will depend on the resale value of your home to make money back from your reverse mortgage line of credit, which might entail decades of wait

The Federal Housing Administration backs HECM loans, so borrowers are subject to more limits when compared to private reverse mortgages. The agreement terms of a HECM loan are often more flexible and consumer-centric than proprietary reverse mortgages. However, borrowers are limited to home values set by the FHA, currently limited at $970,800 for lending and calculation purposes.

Borrowers can use their loan proceeds to eliminate the mortgage payments* due on their existing home loan, see the world, enjoy life in retirement, or for many other needs. Most lenders will provide two options for loan proceeds to be disbursed;

  • A line of credit that allows you to receive monthly payments from your lender, or an open credit line to draw on as you need.
  • In some instances, you can receive the reverse mortgage proceeds from your home equity as a lump sum payment, and your lender won’t need to make subsequent monthly payments to you.

How Does a HECM Work?

Who Provides the Cash for HECMs?

HECM loans are the only kind of reverse mortgage that the Federal Housing Administration insures and the Department of Housing and Urban Development backs. Borrowers will need to meet FHA requirements to join a HECM program, as private lenders will fund the reverse mortgage loans and have them insured by the FHA.

Are HECMs the Same as Proprietary Reverse Mortgages?

Proprietary reverse mortgages share many similarities with HECM loans but receive no backing from the Department of Housing and Urban Development. Mortgage companies tend to reserve them for borrowers who have large estates and would like to exceed the FHA lending limits. These loans don’t carry FHA insurance; however, they tend to share the same consumer-centric safeguards, such as the non-recourse feature.

A Step-by-Step Guide to the HECM Process

If you’re looking for an online consumer information session about home equity conversion loans, here’s how they work:

  1. Research and speak with a licensed loan officer to determine the best reverse mortgage option for you.
  2. Obtain a reverse mortgage application, along with all the necessary documentation for the required housing counseling.
  3. Speak with a HUD-approved housing counselor for the HECM or Proprietary reverse mortgage counseling.
  4. Return a signed application and signed counseling certificate, along with supporting documentation required by the lender.
  5. An appraisal will be ordered by the lender through a third-party appraisal management company.
  6. Complete the underwriting process, including appraisal, financial assessment, and title review.
  7. Close your reverse mortgage loan and enjoy all the benefits that the reverse mortgage provides you.

Who Is a HECM Good For?

A reverse mortgage is ideal for many retirees. HECM loans can be a great way for seniors who enjoy total ownership of their homes, or have a high amount of home equity, to supplement their retirement income or add a financial resource to their portfolio. They can be used strategically throughout retirement or for more immediate needs, the decision is up to you.

Seniors Who Want to Keep Their Homes

HECMs and other reverse mortgage products allow every borrower to refinance their existing mortgages and live happier and more worry-free golden years.

Until a borrower moves out of their home, they won’t have to worry about required monthly mortgage payments.*

Borrowers Who Want to Avoid Exorbitant Bank Rates

A borrower with less than stellar credit won’t have to take on crazy high-interest rates with a HECM. Plus, a HECM allows borrowers to maintain a line of credit that they can tap into when needed, while not needing to pay interest on any unused portion of that line of credit. For example, if years into the future the borrower needs professional home care but doesn’t have the cash to cover it, they can use any unused line of credit proceeds to pay for care and potentially avoid moving into a nursing facility.

HECM Loan Requirements

To qualify for a HECM and other kinds of reverse mortgage loan products, a borrower has to:

  • Be 62 or older**
  • Hold high equity on their home if they don’t own it free and clear
  • Have the ability to continue paying property taxes and other fees, and keep the house in a livable condition

Concerns for HECM Borrowers

A borrower must have a clear picture of their long-term future before taking out a HECM or any other reverse mortgage loan.

Poor Financial Literacy

The FHA requires every reverse mortgage borrower to attend a counseling session to ensure they have a good understanding of the loan and its complexities, before signing on the dotted line. The reverse mortgage is a recent product in the financial industry so borrowers should be sure to consider a few things before getting one.

High Premiums

The HECM has one of the highest mortgage insurance premiums among lending products, especially if your loan period is short. It’s only a viable personal finance strategy if you can afford the MIP.

Non-independent Living Conditions

If you end up residing in an assisted living facility or nursing home, you will lose your status as a primary resident of your home. If you leave your house for longer than two years for cross-continental travel, the same conditions apply. The government will terminate your loan and cut your HECM payments.

If you decide to relocate or change your primary residence, you must repay your HECM within one year. Failure to pay the total amount borrowed will result in the sale of your home.

Non-borrowing Spouses and Family Members

Non-borrowing residents in your home will face eviction if you fail to meet your HECM obligations. Non-borrowing spouses can continue to stay if:

  • Their name is on the loan documents as a spouse
  • You have a legally binding marriage contract
  • Their name is on the title of your estate or added 90 days after your death
  • They become a primary resident of the house you leave behind

How to Choose the Best Mortgage for You

You can find an abundance of mortgage products in the market today. Before investing in one, you may want to download a free credit report from AnnualCreditReport.com to see where you stand.

Talk with your Financial Advisor and a Reverse Mortgage Specialist to decide if a HECM fits in your personal financial strategy. Contact Smartfi Home Loans today at (877) 816-6706 or complete the Contact Us form for a free consultation.

*Borrower must pay property taxes, insurance, HOA fees, and maintain the property.
**Age requirements differ by product and state.
These materials are not from and have not been approved by, HUD, FHA, or any government agency.
Smartfi Home Loans, LLC does not guarantee the accuracy of any information. These materials do not pre-qualify you for any loan program and details should be verified independently with one of our Smartfi Specialists. All home lending products are subject to credit and property approval. Rates, program terms, and conditions are subject to change without notice. Not all products are available in all states or for all amounts. Other restrictions and limitations apply.
Share this post:
  • Facebook
  • Pinterest
  • Twitter
  • Linkedin

Primary Sidebar

Categories

  • First Time Home Buyer
  • Home Maintenance
  • Home Owner Tips
  • Mortgage News
  • Real Estate Tips
Smartfi footer logo
National Reverse Mortgage Lenders Association logo
San Diego HQ
3636 Nobel Dr.
Suite 330
San Diego, CA 92122
Medina Office
1113 Medina Road
Suite 400
Medina, OH 44256
Contact
(877) 816-6706
info@smartfihomeloans.com
Equal Housing Lender logo white
Secured by Sectigo logo
Smartfi Home Loans, LLC BBB Business Review

Privacy Policy  |  State Licensing   |  Web Accessibility  |   Sitemap

2022 Smartfi Home Loans LLC (In Ohio only, does business under the trade name Bankers Guarantee Mortgage Company), Company NMLS 1862952.

These materials are not from, and have not been approved by, HUD, FHA, or any government agency. Subject to Credit Approval. For licensing information, go to: NMLS Consumer Access.

*Borrower must pay property taxes, insurance, any HOA fees and maintain the property.

** Age requirements differ by product and state.

Copyright © 2023 Smartfi Home Loans, LLC. All Rights Reserved. Developed by TinyFrog Technologies.

This website uses cookies to improve your experience. Accept All Reject All
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT

"*" indicates required fields

Become a Partner

* indicates required field
Name*
Consent*
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Connect With Us

* indicates required field
Name*
Consent*
This field is for validation purposes and should be left unchanged.
Fillable Flyers

Real Reverse Possibilities

SMARTFI CHOICE vs. FHA HECM

USING A HECM TO PURCHASE

WHY REVERSE?