When it comes to a Home Equity Conversion Mortgage (HECM)* there is a lot of misinformation circulating around that can prevent homeowners from taking advantage of the full benefits of this type of loan or even beginning to explore this as an option.
But first, let’s go over the basics of the loan.
A HECM loan is a special loan designed to help homeowners trade some of their home equity for cash. Essentially, instead of borrowers making payments to lenders, lenders are the ones making payments to borrowers. The loan is then repaid once the homeowner sells the property, or leaves it to family members.
There are many different factors that determine borrowing power and if you qualify, including the borrower’s age, the amount of equity in the home and current interest rates are some of these factors.
When considering if this is the right loan program for you, you’ll want to make sure you have accurate information so that you can make informed decisions that impact your financial future.
Here are three common myths about HECM loans.
1. You can only use funds in a certain way. Many people assume the funds pulled from the equity in their home can only be used for designated expenses, such as medications. That’s not the case! You are actually able to use the cash toward anything you’d like, such as travel, home renovations or relieving debt.
2. You need a certain credit score to get a reverse mortgage. It’s often assumed that you must have a great score to qualify for this type of loan. Once again; not the case! Your credit score and financial profile will be assessed during the application process, but there is no mandatory requirement to qualify.
3. If you live beyond your life expectancy, you’ll be evicted. One of the biggest fears when it comes to HECM loans is that you might be evicted from your home if you live past your life expectancy. You can rest easy knowing that not only do you still own your home when entering into this type of lending agreement, but your lender will not put any limitations on how long you can live in the home.
Wondering if a HECM loan is right for you? Let’s talk! I’m here to answer all of your questions.
*(1) at the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds; (2) charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees; (3) the loan balance grows over time and interest is charged on the outstanding balance; (4) the borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home; and (5) interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment.
This material is not from HUD or FHA and has not been approved by HUD or any government agency.