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FHA Requirements for Home Equity Conversion Mortgage Loans
Home Equity Conversion Mortgages, or HECM for short, are designed to help qualified borrowers take out an FHA guaranteed loan against the equity built up in their property. HECM loans are intended for a specific segment of homeowner; FHA requirements for HECM loans include an age-specific restriction, plus qualifying ownership status, and restrictions on the type of property that can be used for a Home Equity Conversion Mortgage.
FHA requirements for HECM loans include a stipulation that the applicant be age 62 or older. Homeowners younger than age 62 are not eligible to apply for an FHA-insured HECM loan, but do have the option to apply for a traditional second mortgage instead.
HECM loans are offered only to those who either own their property and have completely paid off their mortgage, or have a mortgage balance low enough that it can be paid off when the HECM loan closes. FHA requirements also include "primary occupancy" rules-you can't take out a HECM loan against a property you don't live in full-time. This means summer homes don't qualify for an FHA-guaranteed HECM loan.
Single-family homes are approved for HECM loans, but a multi-unit property is also eligible if the borrower lives in one of the units. HUD-approved condos are eligible, and those who own manufactured homes may also apply for a HECM loan if the home meets FHA guidelines. It's easy to assume that only homes purchased with an FHA mortgage are eligible for an
FHA-insured HECM loan, but the truth is any property that meets the other FHA requirements listed here may be used, regardless of the status of the original loan-conventional, subprime, VA-guaranteed or FHA-guaranteed.
FHA insured HECM loans do not require mortgage payments as long as the home is the borrower's primary residence. Instead, the loan is paid off when the house is sold either by the owner or the owner's estate. That's one reason why the FHA requires a minimum age limit of 62-it's assumed the home will be sold at some point. That said, the FHA does not require payments if the applicant outlives the loan-as long as the home continues to be the primary residence, the borrower gets to keep the home until it is sold.