If you are 62 or older and your home is paid off, you may have heard about reverse mortgages. One type of reverse mortgage is called a home equity conversion mortgage (HECM) that is backed by the Federal Housing Administration (FHA).
What Is a Home Equity Conversion Mortgage or HECM?
A home equity conversion mortgage allows old Americans to covert their home equity into cash. Learn all about HECM loans below, and speak to one of our helpful loan professionals if you have questions about obtaining a mortgage.
The amount that you can borrow with a home equity conversion mortgage is based on your home’s current market value, and you need to be at least 62. Money is advanced to you against the value of the home, and interest accrues on the balance that is owed. However, no mortgage payments are made until the home is sold, the borrower passes on, or the borrower moves from the property.
How an HECM Loan Works
A home equity conversion mortgage is one of the more popular kinds of reverse mortgages. Generally, the terms for FHA reverse mortgages vary with private reverse mortgage companies, and it may be possible to borrower more money with lower costs than HECMs. However, HECM loans usually provide lower interest rates. Whether an HECM works for you depends on the circumstances, including your age, how long you live, and expect to keep the home. There are some reverse mortgages on the market that target seniors and there are no repayment requirements until the owner sells the property or dies.
You can think about a home equity conversion mortgage in comparison to a home equity loan. A home equity loan bears some resemblance to an HECMs; borrowers are given a cash advance according to the value of the home, which is collateral. A key difference with a home equity loan, however, is the funds must be paid back each month. The HECM loan doesn’t require you to make payments every month, but there are costs related to the servicing and closing of the loan. The borrower also has to pay for mortgage insurance. These fees and premiums can be rolled into your loan, but it reduces the amount of equity you can borrow.
You can receive the money from your HECM in several ways:
• Lump sum
• Monthly payments
• Line of credit
• Monthly payouts and a line of credit
If you take a lump sum, it has a fixed interest rate, while your other options have a variable rate. Regardless of the option you select, you can use your loan proceeds however you wish. The amount you receive depends on your home’s value, your age, and reverse mortgage rates.
Eligibility For HECM Program
The FHA backs the HECM mortgage and offers insurance for the loans. The FHA also has established guidelines and eligibility for these FHA reverse mortgages. The borrower can only get this type of reverse mortgage from a lender where FHA backs the product. To get an HECM, you need to fil out a standard FHA application. For approval of your loan, you must meet these qualifications:
• Be at least 62
• Own the property outright or have paid off most of the mortgage
• Live in the property most of the year
• Not be behind on federal tax debt
• Have the ability to make on-time payments for insurance, taxes, and HOA fees.
• Attend a consumer information session sponsored by HUD
An HECM is a type of reverse mortgage backed by the FHA, but not every reverse mortgage is an HECM. HECMs are administered by the FHA and must be obtained through an FHA-approved mortgage lender.
HECM Loan Programs FAQs
What does HECM stand for, and what is a home equity conversion loan?
HECM stands for Home Equity Conversion Mortgage — the official name for the FHA-insured reverse mortgage program created by Congress under the Housing and Community Development Act of 1987. Home equity conversion loans allow eligible homeowners 62+ to access a portion of their home equity as tax-free funds without making monthly mortgage payments. The loan is “conversion” because it converts illiquid home equity into liquid cash funds. HUD administers the program, FHA insures the loans, and approved lenders originate them across all 50 states.
How does a HECM loan work in 2026?
A HECM loan works through a four-step process in 2026: (1) Determine maximum claim amount — the lesser of appraised home value or the 2026 FHA limit of $1,249,125; (2) Apply Principal Limit Factor (PLF) — based on youngest borrower age and current expected interest rate; (3) Deduct mandatory obligations — existing mortgage payoff, closing costs, and any required set-asides; (4) Disburse remaining proceeds — as lump sum, monthly tenure, term payment, line of credit, or combination. No monthly mortgage payments required for life.
What HECM loan limits apply in 2026?
The 2026 HECM loan limits are uniform nationwide: $1,249,125 maximum claim amount for single-family homes, FHA-approved condominiums, and 2-4 unit properties (with owner-occupancy). Unlike forward FHA loans which have separate limits for each county and property type, HECM uses a single national maximum claim amount. This represents a $39,375 increase from $1,209,750 in 2025. Alaska, Hawaii, Guam, and the U.S. Virgin Islands all use the same $1,249,125 limit. Higher home values use the cap; lower-value homes use actual appraised value.
What Are The Costs Of an HECM Loan?
Most of the costs of your HECM can be financed, so you may not have excessive upfront costs. However, financing the loan’s costs means reducing the amount of money you receive. The loan has several charges and fees to be aware of:
• Mortgage insurance: You will have to pay for FHA mortgage insurance. The insurance ensures that you will receive the loan advances you expect. The mortgage insurance premium can be financed as part of the reverse mortgage.
• Third-party charges: Closing costs can include title search, appraisal, insurance, inspections, recording fees, credit checks, and mortgage taxes.
• Origination fee: You must pay a loan origination fee to pay the lender for processing the reverse mortgage. The lender can charge either $2,500 or 2% of the initial $200,000, whichever is greater, plus 1% of the loan over $200,000.
• Servicing fee: The lender and its agents service the loan each month, which includes giving you an account statement, disbursing the loan proceeds, and ensuring that you keep up with the loan requirements. The lender can charge you up to $30 per month.
How do I find qualified HECM lenders in 2026?
Qualified HECM lenders in 2026 must hold FHA approval to originate HECM loans — verify status at the HUD lender list search. Key evaluation criteria: years of HECM-specific experience, customer reviews on third-party platforms, transparent fee disclosure, HUD-approved counseling facilitation (independent provider — not the lender), proprietary jumbo program access for high-value homes, and state-specific licensing. For mortgage product comparisons across loan types, see second mortgage program options. NMLS registration is required for all loan originators working with HECM products.
What HECM income requirements apply in 2026?
HECM income requirements in 2026 do NOT include a minimum income or DTI ratio for loan qualification. Instead, the financial assessment (introduced in 2015) evaluates residual income — what remains after paying property charges, debt obligations, and basic living expenses. Lenders compare residual income against HUD-published regional residual income thresholds for household size. If residual income falls below threshold, the lender may require a Life Expectancy Set-Aside (LESA) — a reserve funded from loan proceeds to ensure ongoing property tax and insurance payments. Social Security and pension income count fully.
What HECM LTV requirements determine my loan amount?
HECM LTV requirements use a Principal Limit Factor (PLF) rather than traditional LTV. The effective LTV combines: maximum claim amount ($1,249,125 or appraised value, whichever is less) × PLF (based on age and rate). Example: a 72-year-old with a $900,000 home at a 6% expected rate gets approximately 52% PLF = $468,000 principal limit. Higher home values up to the FHA cap, older borrowers, and lower expected rates all produce higher proceeds. Existing mortgages must be paid off from proceeds at closing. See home purchase loan programs for forward-mortgage comparisons.
What credit score requirements for HECM apply in 2026?
There are no minimum credit score requirements for HECM loans in 2026 — the HECM program has no FICO threshold. However, the financial assessment reviews credit history to evaluate willingness to meet ongoing property charge obligations (taxes, insurance, HOA). A pattern of late property tax or homeowners insurance payments is the most significant concern. Federal debt delinquency (tax liens, unpaid student loans) IS a disqualifier. Borrowers with poor credit but strong property charge history typically qualify; those with strong credit but missed property charges may face LESA requirements or denial. See bad credit mortgage program comparisons for alternatives.
What is a HECM for Purchase (H4P) and how does it work?
A HECM for Purchase (H4P) lets buyers 62+ acquire a new primary residence using a reverse mortgage in a single transaction. The borrower contributes a substantial down payment — typically 45%-65% of purchase price depending on age — and the HECM finances the remainder with no monthly mortgage payments required. H4P combines a typical home sale and a new purchase into one closing without dual transactions. The down payment must come from buyer’s own funds (no gift funds from interested parties). Common use: downsizing from $1.5M home to $750K right-sized home while preserving $500K cash for retirement.
How does the HECM refinance process work in 2026?
HECM refinancing in 2026 requires passing HUD’s “5-times benefit test” — additional proceeds must exceed five times the new refinancing costs (or borrower must be adding a non-borrowing spouse). Common refinance triggers: home value appreciated significantly, FHA limit increased, lower interest rates available, or adding a younger spouse for life-of-loan protection. HECM-to-HECM refinances receive UFMIP credits for previously-paid mortgage insurance. The HUD Form HUD-92901 anti-churning disclosure must be provided within 3 business days. See home equity loan refinance details for forward-mortgage refinance comparisons.
HECM vs Home Equity Investment: How do these products differ?
HECM vs Home Equity Investment (HEI) products serve different borrower profiles. HECM: FHA-insured reverse mortgage, 62+ borrower age, $1,249,125 max claim, monthly interest accrues, repaid at borrower’s death or home sale. HEI (Point, Hometap, Unison, etc.): private equity investment from investors, no age minimum, no monthly payments OR interest accrual, repaid through shared home appreciation at sale or 10-30 year term end. HEI is NOT a loan — it’s an equity investment. HECM is regulated by HUD/FHA; HEI is structured as investment contract. Each makes sense for different situations.
How does HomeSafe differ from a HECM reverse mortgage?
HomeSafe (Finance of America Reverse) and HECM serve different home value tiers in 2026. HECM: FHA-insured, 62+ minimum age, $1,249,125 max claim amount, 2% upfront + 0.5% annual FHA MIP, lump sum or 5 payout structures. HomeSafe: privately-insured proprietary, 55+ minimum age (in most states), up to $4 million loan amount, NO FHA MIPs (significant cost savings), 100% first-year proceeds access (HECM caps at 60% in year 1), available in 30+ states. HomeSafe targets high-value homes exceeding HECM’s $1,249,125 cap.
What happens at the end of a HECM loan?
At the end of a HECM loan in 2026, several scenarios unfold. Maturity events: borrower dies, sells home, moves out permanently (12+ months), or defaults on property charges. Once triggered, heirs receive a due-and-payable notice with options: (1) repay the loan balance, (2) refinance into a forward mortgage, (3) sell the home and keep any equity above the loan balance, or (4) deed the home back to lender via “deed-in-lieu.” Heirs have 6 months to act, with two 90-day extensions available. Non-recourse protection caps heir liability at 95% of appraised value.
Is a fixed-rate HECM always paid in a lump sum?
Yes — fixed-rate HECMs are always disbursed as a single lump sum at closing in 2026. This is a HUD program requirement: only adjustable-rate HECMs offer flexible payout options (monthly tenure, term, line of credit, or combination). Fixed-rate HECM borrowers must take all available proceeds upfront with no future access to additional funds, even if home value rises. The fixed rate provides payment certainty but eliminates the line of credit “growth feature” that makes adjustable-rate HECMs popular for long-term retirement planning purposes.
Can I refinance an existing second mortgage with HECM proceeds?
Yes. HECM proceeds can pay off any existing liens on the property — including first mortgages, second mortgages, HELOCs, and home equity loans — as part of the mandatory obligations settled at closing. The combined mortgage payoff plus closing costs cannot exceed the principal limit calculated for your age, home value, and current rates. Borrowers with substantial existing second-lien debt may find their net HECM proceeds significantly reduced after payoff. For traditional second-mortgage refinance options that preserve forward-mortgage structure, see second mortgage refinance options.
Consider an HECM Line Of Credit
Like any type of mortgage, an HECM has risks. One of them is that shady mortgage companies have been known to scam older Americans out of their equity. However, this type of reverse mortgage has benefits for some borrowers, and can be a valuable tool to supplement your income in your older years. The HECM is not like the traditional HELOC Loan. Talk with an HECM lender about the differences between a regular HELOC and the HECM line of credit.
Some financial experts recommend an HECM line of credit. Many say that seniors should establish one as soon as they are eligible. Even if you don’t need your line of credit today, it will grow over time and give you a valuable source of retirement income.
For instance, you could take your equity with an HECM line of credit if you need money to pay for medical costs or living expenses. You will not pay any interest until you tap the line of credit.
HECM Review
An HECM can be a valuable financial tool for homeowners 62 or older who have paid off their mortgage. If you are eligible, you can borrow some of your equity in a lump sum or monthly payments to help with living expenses, medical bills, home improvements, and more.
However, there are disadvantages to getting a reverse mortgage, so you should talk to a financial advisor to decide if this type of reverse mortgage is a fit for you. One of our loan advisors can talk to you today about your various reverse mortgage options.
Reviewed by: John Tappan, NMLS #394171 – Lender Expert (27+ years) | Last Updated: 6/2026 | Fact-Checked ✓
Disclosure: This information is general in nature and current as of 2026. HECM loan rates, Principal Limit Factors, lender requirements, costs, and program features vary by lender, borrower age, property type, and individual circumstances. The figures above are not a quote or commitment to lend. HECM reverse mortgages reduce home equity over time, may affect estate value for heirs, and require ongoing property charge payments to avoid default and foreclosure. All HECM borrowers must complete HUD-approved counseling (1-800-569-4287). Borrowers should consult a HUD-approved counselor, qualified financial advisor, and estate-planning attorney before committing to a HECM loan. BD Nationwide is not a lender; we facilitate connections between borrowers and licensed mortgage professionals.