It’s not just that you who need to qualify for a Home Equity Conversion Mortgage, your property must also meet the FHA’s guidelines. From home types to possible repairs, the HECM property eligibility standards got it covered. What makes your home suited for a HECM? Let’s find out below.
HECM Property Eligibility Standards
For starters, HECMs are applicable to owner-occupied homes, i.e. borrowers have to live in the property subject to the HECM within 60 days of the loan closing.
The property must be a single-family with one to four units. Manufactured homes may be eligible for as long as they are built after June 1976. This eligibility also extends to condominium units, properties in planned unit developments, and those properties in a living trust.
Newly constructed homes can qualify for HECM eligibility provided they are issued with a Certificate of Occupancy or equivalent by local authorities.
Moreover, properties on renewable leasehold for at least 99 years but not less than 50 years beyond the 100th birthday of the youngest borrower can be eligible for a HECM.
Properties ineligible for HECM loans are cooperative units, boarding houses, bread and breakfasts, and manufactured homes (i) built before 15 June 1976 and (ii) lacking HUD certification labels or permanent foundation.
With respect to HECMs, the FHA does not allow flipped properties to be purchased using its reverse mortgages. By flipped, these properties:
- Have been sold by anyone other than the owner of record,
- Resold 90 or fewer days from the previous sale, or
- Resold between 91 and 180 days from the previous sale and the new sales price is more than 100% of the previous sales price and no additional documentation exists to validate the property’s value.
The HECM may require certain repairs to make the home habitable and safe before the property can be deemed eligible for a HECM.
These necessary modifications may be ramps, wider doorways for wheelchair access, stability bars in bathtubs, etc. Nonetheless, the lender may close the loan while the necessary repairs are pending if their estimated total cost is within 15% of the borrower’s maximum claim amount.
The borrower will sign a Repair Rider, setting forth that the repairs are necessary and condition to closing the loan. This rider constitutes additional terms to the HECM.
A portion of your loan funds may be set aside for repairs costs and drawn to complete the necessary repairs.
You can consult with the lender directly the HECM property eligibility standards and whether your property qualifies for a HECM loan.