The Home Equity Conversion Mortgage (HECM)

There are several types of reverse mortgages. The most common is the Home Equity Conversion Mortgage (HECM). This is a type of reverse mortgage that is insured by the federal government. No other type of reverse mortgage program has this type of protection.

HECMs are insured by the Federal Housing Administration, part of the Department of Housing and Urban Development (HUD), which governs how much a lender can offer you. Also, because it is governed by the FHA, you are guaranteed that your lender will meet its obligations.

In general, the HECM offers the largest loan advance available in a reverse mortgage program, and provides you with more choices about how you want to receive the cash. Funds received from the HECM can be used for whatever purpose you wish.

Although the HECM is guaranteed and regulated by the federal government, the mortgage itself is a private mortgage issued through a bank or mortgage company. Only private lenders that have been approved by HUD are able to issue HECM loans.

The amount of money you can get from an HECM depends on your age, your geographic area, and the value of your home. HECMs can be acquired for single-family dwellings, multi-family dwellings of up to four units in which one unit is owner-occupied, manufactured homes, and some condominiums or planned developments. HUD will also require the property to meet a set of minimum standards.

The involvement of HUD gives you additional security. If the private lender becomes insolvent, HUD guarantees that you will still continue to receive all payments as promised. Also, if at the end of the loan, the total amount of cash received exceeds the home’s value, HUD pays the lender the difference, not you or your heirs.