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HECM Reverse Mortgages: How Do They Work?

If you’re thinking about getting a reverse mortgage, you’ll probably come across the acronym HECM. A HECM — or Home Equity Conversion Mortgage— is a federally insured reverse mortgage that allows qualifying home owners to convert their home’s equity into cash.

What is a HECM Loan?

HECM loans are the most popular type of reverse mortgage. They’re the only reverse mortgage insured by the federal government, and consequently, they’re only available through Federal Housing Authority (FHA)-approved lenders.

According to the U.S. Department of Housing and Urban Development (HUD), the amount of cash you can get under a HECM mortgage varies by borrower and is based on 1) the youngest borrower’s age or the age of an eligible non-borrowing spouse, 2) current interest rates, and 3) the home’s appraised value up to the current FHA lending limit of $1,089,300 (2023).

These funds can be used however the borrowers choose. Common uses include supplementing income, saving for retirement, vacationing, repairing or improving their property, or paying for medical expenses.

What’s the Difference Between a HECM and a Reverse Mortgage?

A HECM is a type of reverse mortgage, but all reverse mortgages are not HECMs. The most significant difference is that a HECM is issued by an FHA-approved lender and federally insured to protect benefits like:

  • The ability to choose a fixed or adjustable rate
  • The option to choose how you want to receive your proceeds, such as a line of credit, lump sum, monthly payments, or a combination thereof. How Can You Receive Your Money with a HECM?
  • The fact that HECMs are non-recourse loans, which means you — and perhaps most importantly, your heirs — cannot owe more than your home is worth even if the home loses value due to an economic downturn
  • The ability to continue accessing funds throughout the life of the loan

It is important to discuss these aspects of the program with whichever lender you choose to understand the stipulations and details of these programs.

Prefer to speak with an expert about whether a HECM is right for your situation?

How Does a Home Equity Conversion Mortgage Work?

When tapping into your home’s equity through a HECM, you won’t have access to all of it. Instead, how much you have access to depends on your age and the appraised value of your home.

Unlike a forward mortgage, there’s no minimum FICO score to qualify for a HECM reverse mortgage. However, the lender will still verify your income, assets, monthly living expenses, and credit history to determine your eligibility and ensure that you meet the basic criteria of the financial assessment that is required by HUD.

Once approved, the lender will use the funds from the reverse mortgage to pay off your current mortgage balance, federal judgements, and any liens on the home first. In the first year of a HECM, you are only able to access a portion of your loan amount, but you will be able to access the rest after the first anniversary of the HECM closing date.

Are All Reverse Mortgages Backed by HUD?

There are several kinds of reverse mortgages available to those nearing retirement age, but a HECM is the only option that’s federally insured by the Federal Housing Administration which is overseen by HUD.

HECM Requirements

HECM Borrower Requirements

HECM Property Requirements

How Do I Apply for a HECM?

Here’s how the HECM application process works:

  1. Make sure that you meet all the requirements for a reverse mortgage.
  2. Reach out to a Reverse Mortgage Specialist to complete a loan application. You can search online or speak to your HECM counselor, who will provide a list of approved lenders.
  3. Attend a counseling session with a third-party counselor. You must complete this requirement before your application can move forward.
  4. Undergo an appraisal to establish the legal value of your property.
  5. Underwriting occurs, which includes a title search, title insurance, and verifying your financials.
  6. Once your reverse mortgage has been approved, you will be assigned a closing date. You’ll sign all necessary documents at closing, and the title company will issue you a check if proceeds are available.

HECM Financial FAQs

What Interest Rates Come with a HECM?

What Costs are Associated with a HECM?

How Can You Receive Your Money with a HECM?

Are you wondering if a HECM is the right reverse mortgage for you and your family? Talk with one of our reverse experts today!

Guild Mortgage, LLC NMLS #3274. Equal housing opportunity. This material is not from HUD or FHA, nor was this approved, endorsed by, or on behalf of any Government Agency. For licensing see