What properties are eligible for HECM?
To qualify for an HECM, the mortgaged property must be used as your principal residence. Thus, secondary homes or investment properties are not eligible. The property must be either a single-family home or 2 to 4 unit home.
Reverse mortgage on manufactured homes may be eligible if they comply with the minimum requirements set by the FHA.
Reverse mortgage on condo may also be eligible if they are part of an HUD-approved project.
Ideally, we would provide you with a complete list of these requirements. However, there is simply too much information to consolidate in one post. The minimum requirements are provided in a number of HUD Manuals and Mortgage Letters, which need to be thoroughly studied to determine which requirements apply to your specific property. The best way to determine if your property qualifies for HECM is to have it examined or appraised by an expert, which your reverse mortgage lender can easily refer you to.
When does your HECM need to be repaid?
Like other reverse mortgage loans, an HECM need to be repaid when the borrower
- sells the home,
- transfers his principal residence, or
- fails to comply with the ongoing requirements of the loan.
When the borrower dies, his heirs can still keep the mortgaged property, provided that they pay off the balance of the HECM. However, if the lender does end up foreclosing the property, the proceeds of the sale will be used to pay off the loan and any excess will be given to the heirs. But if the proceeds are less than the loan balance, the lender cannot recover the deficiency from the heirs. Instead, the lender must recover the deficiency from the loan’s FHA insurance.
If the borrower chooses to sell his home, he must use the proceeds of the sale to pay off the balance of the HECM. If there is any excess, he is allowed to keep it. On the other hand, if the proceeds of the sale are less than the balance and the property is sold at its appraised value, the entire amount must be used to pay off the balance and the lender must recover the deficiency from the FHA insurance.
If he transfers his principal residence, the balance must also be repaid. He may choose to sell his house and undergo the process described above or have the same foreclosed.
Complications arise, however, if the borrower’s spouse is still living in the mortgaged property when the borrower dies or moves out. There are several possible scenarios where the spouse can still be allowed to stay in the mortgaged property, but they are too lengthy and complicated to include in this post. If this particular situation concerns you, it would be best to seek expert advice to explore your spouse’s future options.
Finally, if you fail to comply with the ongoing requirements of an HECM, such as the timely payment of property taxes or insurance premiums, and maintenance of the mortgaged property, you will probably receive a notice of default or foreclosure. You will need to act quickly to fix your alleged violations. If property tax and insurance premiums need to be paid but you cannot afford to do so, try asking your reverse mortgage counselor for advice since there may be assistance programs offered by your state or other agencies. On the other hand, if the mortgaged property needs to be maintained, then you should ask your reverse mortgage lender for a list of necessary repairs. Ask different contractors to estimate the cost of repairs. If you cannot afford the repairs, contact your reverse mortgage counselor for advice.