What is an FHA Reverse Mortgage?

July 9, 2024

The FHA Home Equity Conversion Mortgage (HECM) loan program is an option for qualifying borrowers 62 or older. These loans require no monthly payment and feature a cash out option for the borrower.

FHA loan rules say these loans allow you, as a qualifying HECM borrower, “to withdraw a portion of your home's equity to use for home maintenance, repairs, or general living expenses.”
 
There is also the option to use FHA HECM funds “to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price” and the closing costs for the purchase.

FHA HECM loans are, according to HUD.gov, the “only reverse mortgage insured by the U.S. Federal Government,” which makes these loans more attractive to lenders thanks to the government guarantee.

Qualifying Property Types for an FHA Reverse Mortgage

In addition to borrower qualifications mentioned above, property requirements must be met for a house to be eligible for an FHA reverse mortgage option. Those include but are not limited to:
 

• The property must be a single-family home OR;
• The property must be a 2-4 unit home with one unit occupied by the borrower.
• HUD-approved condominium projects and individual condo units may qualify.
• Manufactured homes meeting FHA requirements may also qualify.

How Much can I Qualify for With an FHA Reverse Mortgage or HECM?

How much you can borrow with an FHA HECM depends on the age of the youngest borrower obligated to take out the loan or the age of an eligible but non-borrowing spouse.

The current interest rate also plays a role in determining how much cash is available to you as well as what the FHA describes as the lesser amount of the “appraised value or the HECM FHA mortgage limit or the sales price.”

What to Know About FHA Reverse Mortgages

FHA reverse mortgages require the borrower to attend HECM loan counseling to ensure the borrower knows their rights and responsibilities under the program.
 
Did you know an FHA reverse mortgage can be declared due in full if the borrower stops using the home securing the loan as their primary residence?

This is a requirement under the FHA loan program, and there are other caveats to be aware of. A borrower risks having the lender declare the HECM loan due in full and payable if the borrower fails to stay current on property taxes. These issues are part of why HECM counseling is required of all FHA reverse mortgage borrowers.

You can locate a reverse mortgage counselor near you by searching the official HUD HECM Counselor Roster.