FHA Reverse Mortgage Loans for Qualified Borrowers

February 21, 2016

It’s a common question--does the FHA single family home loan program include reverse mortgages? The reverse mortgage allows qualified borrowers to tap into the value of their home, and it’s an option many borrowers either close to owning the home outright or who have already paid off their mortgage loans may consider.

FHA loans do include a reverse mortgage option--the Home Equity Conversion Mortgage (HECM). It’s available only to qualified borrowers who meet specific guidelines including an age requirement and occupancy requirement.

Borrowers interested in this type of mortgage loan option need to know the difference between an FHA HECM loan and traditional refinancing. “A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.” That’s according to FHA.gov, the FHA official site.

FHA HECM loans don’t resemble other types of home equity loans or second mortgages; “HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM 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 plus closing costs for the property you are purchasing.”

The FHA HECM loan age restriction is one of the first things potential borrowers need to be aware of--that and a mandatory HECM loan counseling requirement.

“To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.”

HECM loans are allowed even in cases where the home was not originally purchased with an FHA mortgage. Borrowers who have already paid off or are close to paying off a mortgage or refinance loan that is conventional, VA or otherwise non-FHA guaranteed, you can still apply if you meet the age requirements and are willing to comply with the occupancy rules of the HECM program.

Only single family homes or a multi-unit with a maximum of four units (one must be occupied by the borrower) are eligible for FHA reverse mortgages. HECM loans cannot be used for investment properties, time shares, vacation homes or other types of home the borrower won’t or can’t use as a permanent residence.