Many retiring homeowners find themselves in the situation of being cash poor and equity rich. This means they live in a home with little or no mortgage and a lot of equity, but may not have the cash to pay the light bill each month. It is because of this problem that the Home Equity Conversion Mortgage (HECM) was created.
Often called a reverse mortgage, the program is often a financial lifesaver for many seniors over the age of 62. Any leading reverse mortgage provider will gladly take the time to explain to a homeowner and/or their children how a HECM works. The basic facts are that the homeowner can draw out all or a substantial part of their home equity and use it for any purpose they desire. In fact, the loan can be set up to provide monthly payments, taken as a lump sum, or a combination of these methods.
The great thing for these seniors is that they do not have to leave their homes until they pass away. However, there are a number of basic qualifications and rules for the program that must be strictly followed and adhered to. The Federal Housing Administration is the government agency that oversees the national program, and it provides detailed guidance to providers who offer such mortgages.
If it appears a reverse mortgage might be a good option for a senior, it is important to learn about all the details and requirements. The National Council on Aging can be reached at (800) 510-0301, and this group offers a helpful booklet that can be downloaded, “Use Your Home to Stay at Home.” Additionally, it is a specific requirement that anyone applying for a reverse mortgage be formally counselled by a trained and certified HECM counselor.
Generally speaking, homeowners can qualify for a reverse mortgage if they have adequate equity, currently live in the home, and have sufficient income to pay future taxes and insurance. Also, the home must be a single family home or a 2 to 4-unit home with one of the units occupied by the borrower. The amount available on any given property is based on the age of the youngest borrower, who must be older than 62 years of age.
Many younger family members are caregivers for seniors living in their home. The HECM loan is often used to help provide care for these individuals while they remain in their home. Those caregivers can get the basic information on this financial option from a can find a HECM counselor online or by phoning the FHA at (800) 569-4287.