The Advantages of Choosing a HECM Loan

So you’re considering a Home Equity Conversion Mortgage, aka. HECM, and may be wondering if you qualify, or what you might do with the money. A trip to Tahiti? Pay off debt? Last time we discussed the fundamentals of a HECM, and how it compares to a traditional mortgage. In this second installment, we’ll get into eligibility requirements, and ways this loan could benefit your financial future.

The basic qualifiers when applying for a HECM, are you must be 62 or better, own your home as a primary residence as well as have an ample amount of equity. But what if you live in a condo or manufactured home? Aside from Co-Ops which are ineligible, condominiums, and manufactured homes approved by the U.S Department of Housing and Urban Development (HUD), 1-4 unit homes, and some land lease properties qualify for a HECM.

Can you apply if you already have a mortgage? If you don’t own your home outright, most folks considering a HECM already have a traditional loan that must be paid off by the proceeds of the HECM. This is where having enough equity comes in because you want there to be enough to cover the remaining loan balance, plus what you may be putting cash back in your pocket.

What are the benefits of a HECM? The best part about this type of loan is your house is still your own without having a mortgage payment. Without that big chunk of change going out every month, it leaves money to perhaps tackle a renovation project, buy that Italian leather sofa you’ve been eyeing, or add to your nest egg.

The money you borrow from your home’s equity is not considered taxable income by the IRS and can be used as you wish. As a federally insured loan, your heirs aren’t held liable for repayment even when the home sells for less than the loan amount.

A HECM can be of great help for older adults trying to achieve financial security. There are options for how you receive the money from your home’s equity. You can choose to take it as a lump sum, use it as a line of credit, receive a monthly payment for a set period, or a tenure that pays you monthly for as long as you or any other owners reside in your home. Needing a down payment for a purchase? HECM funds can also be issued as an advance along with monthly income payments.

Once you decide that a HECM is a way to go, shopping for a lender you feel comfortable working with is crucial. Don’t settle if it doesn’t feel right! Before you sign the dotted line, tune in next time when we’ll take a guided tour of the application process.