HECM stands for Home Equity Conversion Mortgage. It is the reverse mortgage program insured by the Federal Housing Administration, and it accounts for the large majority of reverse mortgages made in the United States. A HECM lets homeowners age 62 and older convert part of their home equity into cash without selling the house and without making monthly mortgage payments.

You keep the title. You keep living there. The loan becomes due when the last borrower sells, moves out permanently, or passes away.

This guide covers who qualifies, how much you can borrow, the five ways to receive money, what the program costs, and how HECM compares to private reverse mortgages.

HECM Eligibility Requirements for 2026

To qualify, you must meet all of the following:

  • Be at least 62 years old. If you are married and your spouse is younger, they can be listed as a non-borrowing spouse with certain protections — but the amount you can borrow will be based on their age, not yours.
  • Own the home outright or have substantial equity. Most borrowers need to own at least half the home’s value. Any existing mortgage is paid off with the HECM proceeds at closing.
  • Live in the home as your primary residence. Vacation homes and rentals do not qualify.
  • Complete HUD-approved counseling. This is required before you can apply. A certified counselor explains the program and reviews alternatives with you. The session typically costs around $125 to $200, and it can sometimes be waived for financial hardship.
  • Pass a financial assessment. Lenders check whether you can keep up with property taxes, insurance, and maintenance. More on this below.
  • Be current on federal debt and have a property that meets FHA standards.

Eligible properties include single-family homes, two-to-four unit buildings where you occupy one unit, FHA-approved condominiums, and some manufactured homes.

The financial assessment and set-asides

Since 2015, lenders must review your income and credit history — not to decide whether you can afford a payment, since there isn’t one, but to judge whether you can keep paying taxes and insurance.

If the lender has doubts, they can require a Life Expectancy Set-Aside. This carves money out of your proceeds and holds it to pay taxes and insurance for you. It protects you from default, but it reduces what you actually receive — sometimes substantially. Ask early whether a set-aside is likely in your case, because it changes the math.

HECM Loan Limits in 2026

hecm loans

The 2026 HECM lending limit is $1,249,125.

This figure is widely misunderstood. It is not the amount you can borrow.

It caps the home value the FHA will consider when calculating your loan.

If your home appraises at $1.6 million, the calculation treats it as worth $1,249,125, and everything above that is excluded.

Your actual loan amount is always less — often much less. Which brings us to how the number is determined.

How Much Can You Actually Borrow with a HECM?

The amount available to you is called your principal limit, and it depends on three things:

  • Your age. Older borrowers qualify for a higher percentage. A 62-year-old might access roughly 40% of the home’s value; an 80-year-old considerably more.
  • The home’s appraised value, capped at the lending limit above.
  • The expected interest rate. Lower rates produce higher principal limits.

If a younger spouse is on the loan, the calculation uses their age. This is why adding a younger spouse protects their housing but reduces available proceeds — a genuine trade-off families weigh carefully.

Five Ways to Receive the Money with a HECM

This is where HECM becomes flexible in ways most people do not expect.

Option How it works Best suited for
Lump sum One payment at closing. Available only with a fixed rate. Paying off an existing mortgage or a large one-time expense
Tenure Equal monthly payments for as long as you live in the home Supplementing fixed income indefinitely
Term Equal monthly payments for a set number of years Bridging to a known future event, such as delaying Social Security
Line of credit Draw what you need, when you need it. The unused portion grows. Standby reserves and long-term flexibility
Modified tenure or term Monthly payments plus a smaller line of credit Borrowers wanting steady income and an emergency fund

Fixed Rate HECM vs. Adjustable

This choice has a consequence most borrowers do not realize until it is too late.

A fixed rate HECM is only available as a single lump sum at closing. You take all the money at once, and interest begins accruing on the entire balance immediately. There is no line of credit, no monthly payment option, and no way to leave funds untouched.

An adjustable rate HECM unlocks every other option — the line of credit, tenure and term payments, and the modified plans. Your rate moves over time, but you only accrue interest on what you have actually drawn.

For most borrowers who do not need all the money immediately, the adjustable version costs far less over time, because money left undrawn costs nothing.

The Line of Credit Growth Feature

This is the most valuable feature of the HECM program and the least understood.

With a HECM line of credit, the portion you have not borrowed grows larger over time. It grows at your loan’s interest rate plus the annual mortgage insurance rate. The longer you leave it alone, the more becomes available.

Read that again, because it is genuinely unusual. Your borrowing capacity increases whether or not your home appreciates. A borrower who opens a line at 65 and does not touch it until 80 will find far more available than the day they signed.

Two further points make this stronger than a home equity line of credit:

The lender cannot freeze or reduce it. During the 2008 housing downturn, banks froze HELOCs across the country when home values fell. FHA insurance guarantees a HECM line remains available regardless of what happens to your home’s value or to the lender.

There is no monthly payment, and no repayment schedule that eventually arrives.

This is why some financial planners recommend opening a HECM line of credit early and leaving it unused — as a standby resource that grows in the background. For how that compares with a conventional equity line, see our guide to reverse mortgages versus HELOCs.

The 60% First-Year Rule

HUD limits how much you can take in the first 12 months. You may access the greater of 60% of your principal limit, or your mandatory obligations plus 10% of the principal limit.

Mandatory obligations are things that must be paid at closing — an existing mortgage, liens, and financed closing costs. If those exceed 60% of your principal limit, the second formula applies and you may take an additional 10% beyond them.

The rule exists to discourage borrowers from taking everything immediately and exhausting the resource. Note that taking less in year one does not reduce your upfront mortgage insurance — that is charged on the home’s value regardless.

HECM for Purchase

You can also use a HECM to buy a home rather than to tap equity in one you already own. The program is called HECM for Purchase, often shortened to H4P.

Here is how it works. You bring a substantial down payment from your own funds — typically from selling your previous home — and the HECM covers the rest of the purchase price. You then own the new home with no monthly mortgage payment.

The required down payment depends heavily on your age, since older buyers qualify for a higher percentage. It generally runs from roughly 45% to 70% of the purchase price. The older you are, the less you need to bring.

This appeals to seniors downsizing, relocating closer to family, or moving into a single-story home. Rather than buying outright and tying up all their proceeds, they buy with a HECM and keep the difference liquid.

Two rules to know. The entire purchase price counts as a mandatory obligation for the first-year rule. And seller contributions are restricted far more tightly than on a conventional purchase, so do not plan on the seller covering your costs.

HECM for Purchase closing costs mirror a standard HECM — upfront mortgage insurance, origination, appraisal, title, and recording — and most buyers pay these from their own funds rather than financing them, since financing reduces the amount the HECM can contribute.

What a HECM Costs

Upfront mortgage insurance is 2.00% of the home’s value, calculated on the lesser of the appraised value or the lending limit. On a $400,000 home, that is $8,000.

Annual mortgage insurance is 0.50% of the outstanding balance. It accrues rather than being billed, and it is also what makes your line of credit grow.

Beyond insurance, expect an origination fee, an appraisal, title insurance, recording fees, and the counseling fee. Most borrowers finance these costs into the loan rather than paying cash.

These are not small numbers, and they come out of your equity. That is the honest trade for a loan requiring no payments.

HECM vs. Proprietary Reverse Mortgage

Private lenders offer their own reverse mortgages, often called proprietary or jumbo reverse mortgages. They differ in important ways.

Proprietary products can exceed the FHA lending limit, which matters if your home is worth well above $1,249,125. Some accept borrowers younger than 62. And because they carry no FHA insurance, they charge no mortgage insurance premium — which lowers upfront cost.

But they are not FHA-insured, which means the protections come from the contract rather than from federal law. The line of credit growth feature is typically absent or structured differently. Terms vary by lender in a way HECM terms do not.

For most borrowers with homes under the lending limit, HECM’s standardized protections and growth feature outweigh the insurance cost. For owners of high-value homes, proprietary products deserve a close look.

Case Study: A Naples Homeowner Sets Up a Standby HECM Line

Illustrative example based on common circumstances and program rules. Individual results vary.

A 72-year-old retired engineer in Naples owned his home free and clear, appraised at $620,000. He had adequate retirement income and did not need cash. What worried him was a future health event, and the prospect of selling investments during a market downturn to cover it.

He chose a HECM line of credit specifically because of the growth feature. His principal limit came to roughly $279,000. After financing about $19,000 in closing costs including the $12,400 upfront insurance premium, his available line stood near $260,000.

He drew nothing. Left untouched, that line was projected to grow to roughly $373,000 within five years and $536,000 within ten, at the rate in effect on his loan. His home did not need to appreciate for that to happen.

How he shopped lenders. He collected written quotes from four HECM lenders and compared three things: the origination fee, the margin added to the index, and the expected rate used to calculate his principal limit. Origination fees varied by several thousand dollars between lenders. The margin mattered even more, because it affects both what accrues and how fast the line grows.

How he justified the costs. Roughly $19,000 is real money. He weighed it against the alternative — selling securities at a bad time, or taking a loan requiring monthly payments on fixed income. The line also could not be frozen or canceled, which a HELOC could be.

He completed HUD counseling, passed the financial assessment without a set-aside because of his tax and insurance history, and his home met FHA standards after a minor repair to a stair railing.

How to Shop HECM Lenders

HECM terms are standardized by HUD, but costs are not. Compare at least three lenders on:

  • The origination fee. HUD caps it, but lenders routinely charge less than the maximum, and some waive it entirely.
  • The margin. This is added to the index to set your rate. A lower margin means slower balance growth and faster line growth.
  • The expected rate used to calculate your principal limit.
  • Third-party costs, which vary by provider.

Verify any lender at nmlsconsumeraccess.org, and be cautious of high-pressure sales tactics, which remain a problem in this corner of the industry. A legitimate lender will encourage counseling and give you time to decide.

Takeaways on HECM Loans

A HECM is a flexible tool with real costs and real protections. If you are considering one, the line of credit option deserves serious attention — particularly if you do not need money immediately, because the growth feature rewards patience in a way few financial products do.

Before deciding, read our guide to what a reverse mortgage is for the fundamentals, refinancing a reverse mortgage if you already have one, and whether a mortgage makes sense in retirement for the broader decision.

Frequently Asked Questions

What does HECM stand for?

HECM stands for Home Equity Conversion Mortgage. It is the reverse mortgage program insured by the Federal Housing Administration and administered by HUD, and it represents the large majority of reverse mortgages originated in the United States. The name describes what it does: it converts home equity into accessible funds without requiring you to sell or make monthly payments. Private reverse mortgages that are not FHA-insured are called proprietary reverse mortgages and follow different rules.

What are the HECM requirements in 2026?

You must be at least 62, occupy the home as your primary residence, and own it outright or hold substantial equity. HUD-approved counseling is mandatory before applying. Lenders conduct a financial assessment reviewing your income and credit to confirm you can maintain property taxes, insurance, and upkeep. The property must meet FHA standards, and you must be current on federal debt. Eligible properties include single-family homes, two-to-four unit buildings you occupy, FHA-approved condos, and some manufactured homes.

Can you use a HECM to buy a home?

Yes, through HECM for Purchase. You contribute a substantial down payment from your own funds, usually proceeds from selling a previous home, and the HECM finances the remainder. You own the new property with no monthly mortgage payment. The required down payment depends on your age and generally ranges from about 45% to 70% of the purchase price. Older buyers contribute less. Seller contributions are more restricted than on conventional purchases, so plan to cover closing costs yourself.

Does the HECM line of credit really grow?

Yes. The unused portion of a HECM line of credit increases over time at your loan’s interest rate plus the annual mortgage insurance rate. This happens regardless of whether your home appreciates. FHA insurance also guarantees the line stays available — a lender cannot freeze or reduce it because home values fell, which is something home equity lines of credit experienced widely during the 2008 downturn. The growth feature applies only to adjustable rate HECMs, not fixed rate versions.

What happens to a HECM when the borrower dies?

The loan becomes due and payable. Heirs typically have several months, with possible extensions, to decide among three options: repay the balance and keep the home, sell it and keep any remaining equity, or sign a deed in lieu and walk away. Because HECMs are non-recourse, heirs never owe more than the home’s value at sale. If the balance exceeds what the home sells for, FHA insurance absorbs the difference.

References

This article is educational and is not financial advice or an offer of credit. HECM rules, limits, and costs change. Confirm current terms with a HUD-approved counselor and a licensed lender. RefiGuide.org is an advertising marketplace, not a lender.