HUD and Reverse Mortgages: HECM Costs, Counseling, and Scams

The HUD reverse mortgage, formally called the Home Equity Conversion Mortgage or HECM, lets homeowners aged 62 and older borrow against their home equity without selling the house or making monthly mortgage payments. The Federal Housing Administration insures the loan, and the U.S. Department of Housing and Urban Development sets the rules. It is by far the most common reverse mortgage in the country, accounting for roughly 95 percent of the market, with more than 681,000 active loans as of September 2025.¹

How a HECM Works

A regular mortgage runs one direction: you pay the lender. A HECM runs the other way. The lender advances money against the equity in your home, and nothing is due as long as you live there as your primary residence and keep up with certain obligations. The loan comes due when you sell, move out permanently, or die.²

Because you are not making payments, interest and fees are added to the loan balance every month. The balance grows; your equity shrinks. FHA insurance backs the loan on both sides. If the home eventually sells for less than what you owe, FHA covers the shortfall. You and your heirs will never owe more than the home is worth.³

Who Qualifies

To take out a HECM, at least one borrower must be 62 or older, the home must be your primary residence, and you must complete counseling with a HUD-approved counselor before you apply. The property itself has to meet FHA standards.⁴

Lenders also run a financial assessment, added by HUD in April 2015, to check whether you can afford to keep paying property taxes and homeowners insurance after closing. If the assessment shows you may struggle, the lender can require a Life Expectancy Set-Aside, or LESA: money held back from your loan proceeds so the servicer can pay those bills on your behalf.⁵

How Much You Can Borrow

The amount you can access is called the principal limit. Three things set it: the age of the youngest borrower or eligible non-borrowing spouse, the current interest rate, and the maximum claim amount, which is the lesser of your home’s appraised value or the FHA lending limit. For 2026, HUD raised that nationwide limit to $1,249,125, up from $1,209,750 in 2025, under Mortgagee Letter 2025-22.⁶⁷

Older borrowers generally qualify for a larger share of their home’s value, because the lender expects to be repaid sooner.

How You Receive the Money

There are five ways to take the money, but only one is available with a fixed interest rate:

Lump sum at closing. This is the only option with a fixed rate, and it is the most expensive, because interest starts running on the whole balance immediately.
Line of credit. You draw funds when you need them, and the unused portion grows over time. Adjustable rate only.
Term payments. Equal monthly payments for a set number of years. Adjustable rate only.
Tenure payments. Equal monthly payments for as long as you live in the home. Adjustable rate only.
Modified term or tenure. A line of credit combined with monthly payments. Adjustable rate only.

In the first 12 months, there is a cap on how much you can pull out. It is generally the greater of 60 percent of the principal limit or the amount needed to cover mandatory obligations plus 10 percent of the principal limit.⁸ HUD imposed that limit after the Consumer Financial Protection Bureau found that 70 percent of borrowers were taking lump-sum payouts and draining their equity up front.⁹

What a HECM Costs

HECMs carry several layers of cost. Most can be rolled into the loan balance rather than paid out of pocket, but they still get charged to you.

Initial mortgage insurance premium: a one-time 2 percent charge on the maximum claim amount (or the appraised value, whichever is lower), paid to FHA at closing.¹⁰
Annual mortgage insurance premium: 0.5 percent of the outstanding loan balance, accrued monthly.¹¹
Origination fee: charged by the lender and capped at $6,000.²
Third-party closing costs: appraisal, title search, recording fees, and similar charges.
Servicing fees: monthly charges for account management.

Because interest and insurance compound on a growing balance, the total cost climbs the longer the loan is out. HUD counseling itself typically runs around $125, though HUD-approved agencies cannot turn borrowers away for inability to pay.³¹¹

In April 2024, HUD tightened one cost practice on HECM for Purchase transactions. Mortgagee Letter 2024-06 banned premium pricing, where lenders offered an upfront credit toward closing costs in exchange for a higher interest rate over the life of the loan. The letter also prohibited interested-party contributions from lenders and third-party originators, while still allowing up to 6 percent of the sales price from sellers, builders, and real estate agents.¹²

The Counseling You Have to Complete First

No lender can process your HECM application until you have completed a counseling session with a HUD-approved housing counselor. The session covers how the loan works, what it will cost, alternatives you might not have considered, and whether you qualify for public benefits that could meet your need instead.¹³ It can be done in person or by phone.

Counselors work through your finances using a Financial Interview Tool and must issue a Certificate of HECM Counseling before the loan can go forward.¹⁴ By law they cannot be affiliated with any lender, and they are not allowed to tell you what to do. To find a counselor, use HUD’s online locator or call 800-569-4287.

What You Still Owe After Closing

A HECM does not free you from all housing costs. You have to keep paying property taxes, homeowners insurance, and any homeowner association fees. You have to keep the home in good repair, and you have to certify each year that it is still your primary residence.¹⁵ Slipping on any of these can put your loan in default.

If you fall behind on property charges, the servicer sends a notice of delinquency, then a due-and-payable notice giving you 30 days to respond. Before starting foreclosure, the lender has to refer you to a HUD-approved housing counselor, and the servicer may offer loss mitigation options such as a repayment plan or a servicer-funded cure of the default.¹⁶ Those options are discretionary, so what a servicer offers can vary.

Property charge defaults have been a real problem for the program. A CFPB study found nearly 10 percent of HECM borrowers at risk of foreclosure for failing to pay taxes and insurance.⁹ The financial assessment and LESA rules exist to head that off.

If a Spouse Is Not on the Loan

What happens to a spouse who is not on the loan when the borrowing spouse dies or moves to long-term care depends on when the HECM was originated.

For HECMs originated on or after August 4, 2014, an eligible non-borrowing spouse can stay in the home after the borrower’s death if the couple was married at closing, the spouse is named in the HECM documents, the home is the spouse’s primary residence, and the spouse continues to meet all loan obligations including taxes and insurance.¹⁷ The spouse must recertify each year. Important limit: the non-borrowing spouse cannot receive any additional loan proceeds, including money in set-aside accounts.

For HECMs originated before August 4, 2014, protection comes through the Mortgagee Optional Election program, which lets the servicer defer the loan’s due-and-payable status. HUD’s Mortgagee Letter 2021-11 extended protections to cases where the borrowing spouse enters a long-term care facility and eliminated the earlier requirement that surviving spouses show “good and marketable title” to the home.¹⁶

How the Loan Ends

The HECM becomes due and payable when the last surviving borrower sells the home, moves out permanently, or dies. At that point the balance, including all accrued interest and insurance, has to be repaid. In practice the home is usually sold. If the sale brings in more than the loan balance, the extra goes to you or your heirs. If it brings in less, FHA insurance pays the shortfall to the lender, and no one else is on the hook. That non-recourse feature is the core protection the federal insurance provides.³

Proprietary Reverse Mortgages Are Not HECMs

Some lenders offer proprietary or “jumbo” reverse mortgages for homes worth more than the FHA lending limit. These are not HUD loans. They carry no FHA insurance, no mandatory HUD counseling, and no guarantee that payments will continue if the lender fails. The CFPB and AARP have both cautioned that the lighter regulatory framework makes them riskier for consumers than the HECM.¹⁸³

Common Reverse Mortgage Scams

HUD’s Office of Inspector General runs a fraud prevention program aimed at reverse mortgage schemes. The recurring patterns to watch for: pressure to refinance an existing HECM for no clear benefit, steering a lump-sum payout into overpriced home repairs or an investment product, and pitches suggesting non-homeowners can acquire a home through the HECM program with no money down.¹⁹ If someone selling you a reverse mortgage is also selling you what to do with the money, that is the warning sign.

1
HUD.gov. FHA Annual Report to Congress FY 2025
2
Consumer Financial Protection Bureau. Reverse Mortgage Rights and Responsibilities
3
AARP. Reverse Mortgage Guide
4
HUD.gov. Home Equity Conversion Mortgage
5
HUD.gov. HECM Financial Assessment and Property Charge Guide
6
HUD.gov. FHA Single Family Lender Page
7
National Mortgage Professional. HUD Boosts FHA HECM Loan Limits for 2026
8
Congress.gov. CRS Report R44128 – FHA HECM Program
9
Consumer Financial Protection Bureau. CFPB Report Finds Confusion in Reverse Mortgage Market
10
Reverse.Mortgage. HECM Insurance Premiums
11
Consumer Financial Protection Bureau. How Much Does a Reverse Mortgage Loan Cost
12
HUD.gov. Mortgagee Letter 2024-06
13
National Council on Aging. Reverse Mortgage Counseling
14
HUD Exchange. Reverse Mortgage Housing Counseling
15
District of Columbia Department of Insurance, Securities and Banking. What You Should Know About Reverse Mortgages
16
National Consumer Law Center. New Protections for Foreclosure on Reverse Mortgages
17
HUD.gov. Can I Stay in My Home if My Spouse Had a Reverse Mortgage and Has Passed Away
18
Consumer Financial Protection Bureau. Are There Different Types of Reverse Mortgages
19
HUD Office of Inspector General. Reverse Mortgage Schemes Fraud Bulletin