Reverse Mortgage/HECM
Guidelines

ELIGIBILITY REQUIREMENTS
– Age Requirement: The borrower (or at least one of the borrowers if it’s a couple) must be 62 years of age or older. Younger spouses are protected under certain provisions but cannot be co-borrowers unless they meet the age threshold.

– Primary Residence: The home being financed must become the borrower’s primary residence within 60 days of closing. Investment properties or second homes are not eligible.

– Occupancy: Borrowers are required to live in the home for the majority of the year.

– Financial Assessment: A thorough financial assessment is conducted to ensure the borrower can meet the ongoing obligations of the loan, such as property taxes, homeowner’s insurance, and maintenance costs. If financial risks are identified, a life expectancy set-aside (LESA) may be required to cover these ongoing expenses.

PROPERTY REQUIREMENTS

– Eligible Properties: The property being financed with a Reverse Mortgage/HECM loan must meet specific eligibility criteria. Eligible property types include:

 – Single-family homes

 – HUD-approved condominiums

 – 2-to-4 unit properties (one unit must be occupied by the borrower)

 – FHA-approved manufactured homes

– FHA Guidelines: The home must meet FHA property standards and appraisal guidelines. Homes that require significant repairs might not qualify unless the borrower agrees to make the necessary repairs. 

– New Construction: Newly built homes are eligible as long as they have a certificate of occupancy issued prior to the HECM loan’s closing. 

DOWN PAYMENT REQUIREMENTS
– Unlike traditional mortgages, where the buyer may use a small down payment when buying a home, a Reverse Mortgage/HECM for Purchase requires a significant down payment. This is because the reverse mortgage only covers a portion of the purchase price, based on factors such as the borrower’s age and the appraised value of the home.

– The down payment typically comes from the sale proceeds of the borrower’s previous home, personal savings, or other liquid assets. Loan proceeds from another mortgage (such as a home equity loan or a second mortgage) cannot be used as part of the down payment.

– The amount of the required down payment is generally between 30% to 50% of the purchase price, depending on the borrower’s age, interest rates, and the lesser of the home’s appraised value or purchase price.

 LOAN STRUCTURE and LIMITS
– Loan Proceeds: The amount of loan proceeds is based on several factors, including the borrower’s age, the home’s value (up to the current FHA loan limit), and current interest rates. Older borrowers tend to qualify for more funds.

– FHA Loan Limit: The FHA loan limit for HECM loans is $1,089,300, though this is subject to periodic adjustments by the FHA.

– Interest Rates: Reverse Mortgage/HECM loans may have either fixed or adjustable interest rates, with adjustable rates offering more flexibility in terms of how proceeds are distributed.

– No Monthly Payments: Borrowers are not required to make monthly mortgage payments. Instead, the loan balance increases over time due to accrued interest and mortgage insurance premiums, which are added to the loan balance.

ONGOING OBLIGATIONS
While the borrower is not required to make mortgage payments, they must continue to meet the following financial responsibilities:

– Property Taxes: Keeping property taxes current is essential to avoid loan default.

– Homeowner’s Insurance: Borrowers must maintain an active homeowner’s insurance policy.

– Home Maintenance: The property must be kept in good condition. Major neglect or deterioration may result in the lender demanding repayment or a forced sale of the home.

COUNSELING REQUIREMENT
All HECM borrowers must undergo HUD-approved counseling prior to loan approval. This ensures they understand the details of the loan, their responsibilities, and the costs involved. The counseling session is meant to help borrowers make informed decisions and assess whether the loan is a suitable option for their financial goals.

REPAYMENT of the LOAN

A Reverse Mortgage/HECM loan is repaid when one of the following events occurs:

– The borrower sells the home.

 – The borrower no longer occupies the home as their primary residence for 12 consecutive months, such as in the case of moving to assisted living.

– The borrower passes away.

– The home is no longer maintained properly, or property taxes and insurance are not kept current.

Upon any of these events, the loan becomes due, and the home is typically sold to repay the loan. Any remaining equity after repayment belongs to the borrower or their heirs.