These federally insured loans allow seniors to borrow against the equity of their home without having to make regular payments on the loan. HECMs are available through the Federal Housing Administration (FHA).
One of the major benefits of an FHA-insured HECM loan is that it offers borrowers the option to set aside a portion of the loan proceeds in an account specifically for the payment of property taxes. This set aside account, called the ‘Impound Account’ or ‘Impound Escrow’, can be used to cover the homeowner’s property taxes while also allowing the borrower to benefit from the tax leverage provided by the government.
In order to qualify for this kind of loan with a set aside account, the borrower must meet certain requirements. Generally, this includes a credit score of at least 500, an age requirement of over 62, and having enough equity in the home to cover the cost of the loan plus interest. Additionally, in order to have an Impound Account established, the borrower must have a minimum of $100 in the account.
The Impound Account serves two functions: it collects money for the periodic payment of property taxes, and also allows the borrower to benefit from the tax leverage provided by the government. This means that if the homeowner’s property taxes increase, the amount placed in the Impound Account will also increase accordingly. The Impound Account also helps to reduce the risk faced by the lender that the borrower may not pay their property taxes in a timely manner.
Overall, an FHA HECM loan with an Impound Account is an excellent way for seniors to access the equity of their homes while also benefiting from the tax leverage provided by the government. The account helps to ensure that the borrower can keep up with the payment of their taxes and helps to reduce the risk faced by the lender.
The Home Equity Conversion Mortgage (HECM) is a popular choice for seniors who want to access the equity of their home through a federally insured loan. The FHA HECM loan offers many benefits, such as the option to establish an Impound Account, which allows homeowners to set aside money for the payment of property taxes. By setting up this account, homeowners are able to benefit from the tax leverage provided by the government, and the lender is better protected from risks associated with late payments on property taxes.
To be eligible for an FHA-insured HECM loan with an Impound Account, borrowers generally need to have a credit score of 500 or higher, be at least 62 years old, and have sufficient home equity to cover the costs of the loan. Additionally, the Impound Account must contain a minimum of $100. The Impound Account collects money for the payment of property taxes and increases when the homeowner's taxes increase.
Overall, the FHA's HECM loan with an Impound Account is an attractive option for seniors who wish to access the equity of their home while also gaining the benefits of the tax leverage provided by the government. The Impound Account ensures that the borrower pays their taxes on time, while also providing the lender with greater peace of mind.
This article was contributed on Oct 19, 2023
