Q: Are monthly payments required on the HECM mortgage?
A: No monthly mortgage payments are ever required. The only financial responsibilities of the homeowner are payment of homeowner’s insurance (flood insurance if applicable), property taxes and to maintain a general upkeep of the home. However, if the borrower wishes to make payments on the HECM, there is no penalty.
Q: Will the lender own my home with a HECM mortgage?
A: No, the lender does not take control of title. The borrower will retain ownership of the home and rights to title. The lender’s concern is limited to the outstanding balance of the loan.
Q: When I pass away, will my heirs be responsible for the repayment of the HECM loan?
A: The HECM is a non-recourse loan, therefore the home is the only asset the lender can pursue to repay the loan balance. The heirs, or the estate, will only need to pay back the HECM loan if they choose to retain ownership of the home. They can do so by refinancing into their own name or purchasing the home for 95% of the value at the time the last borrower passes away. If they wish to sell the home, they can do that as well. Any remaining proceeds from the sale of the home, after paying the HECM balance, will go to the estate. If the heirs choose to refuse ownership, then the servicer will foreclose on behalf of the lender to seek restitution for the loan balance. However, this will not reflect negatively on any of the heirs’ credit.
Q: How can I receive proceeds from the HECM loan? Is a monthly disbursement my only option?
A: Proceeds from the HECM are tax-free and can be distributed in a variety of ways based on the borrower’s choosing. Among these are: monthly disbursements (set to be distributed for the lifetime of the borrower or for a specific amount of time), a single lump sum received at funding, a stand-by line of credit to be drawn upon when the borrower chooses or a combination of monthly disbursements with a line of credit.
Q: Will the proceeds from the HECM affect my Social Security or Medicare benefits?
A: No, the loan proceeds from a HECM generally do not affect Social Security, Medicare or pension benefits. However, they may have an impact on Medicaid, Supplemental Security Income (SSI) or other income-based programs, which vary from state to state. For details on your specific situation, please contact the benefits professional concerning that area.
Q: How difficult is it to qualify for a HECM?
A: It is not difficult at all! You must occupy the home as your primary residence, be at least 62 years of age, the property must be eligible for financing (single family, 2-4 units, FHA approved condominiums, townhomes, planned unit development (PUD), and ensure you have enough income to pay your monthly obligations including property taxes and insurance.
Q: We may be looking to downsize, is the HECM only used for refinances?
A: Great! The HECM can be used to purchase your next new home with a single down payment and no recurring monthly mortgage payments. See buying a home to learn more.
Q: What if my home needs some repairs? Am I disqualified from getting a HECM loan?
A: Using the equity in your home through a HEMC mortgage is a great way to get cash needed for home repairs without increasing your monthly expenses. It is also possible to have cosmetic repairs completed after the loan funds dependent upon underwriters’ review of required repairs.
Q: If no monthly payment is due, then when do I payback the loan?
A: The loan is due when a triggering event, or maturity event occurs. These include:
- When the last surviving borrower dies and there is no spouse remaining in the home
- When the home is sold
- If the home is vacated for 12 consecutive months or more
- Failing to pay property taxes or insurance
- When the home is no longer deemed habitable as defined by HUD.
Q: We like to take long vacations and travel. Will that be a problem after we get a HECM?
Not at all! You may want to let servicing know of where to send your mortgage statements if you will be gone for long periods of time. But as long as you do not permanently leave the home or leave for longer than 12 consecutive months, your HECM loan will remain intact.
Q: I am married to someone who is not 62. Can we still get a HECM loan?
A: Yes! Unfortunately the younger spouse will not be able to be on title or be a co-borrower on the loan, but they will be protected under HUD guidelines to remain living in the home even after the older spouse passes away or is placed in a permanent healthcare facility.