HECM Program Requirements and Product Features
This domain tests the mechanics and the arithmetic: who qualifies, how much money is available, how it can be paid out, what it costs, and when the loan comes due.
Eligibility
All borrowers must be 62 or older at closing and must occupy the home as their principal residence, with at least one borrower on title. Eligible properties include single-family homes, HUD-approved condominiums, and manufactured homes meeting HUD standards. The borrower must have no delinquent federal debt and must stay current on property taxes, hazard insurance, and HOA dues.
The money
- Maximum claim amount (MCA): the lesser of appraised value or the FHA ceiling, adjusted annually (for example, $1,209,750 for 2025).
- Principal limit: MCA multiplied by the principal limit factor, which rises with the age of the youngest borrower and falls as the expected rate rises.
- Net proceeds: principal limit minus closing costs, existing liens, the 2% initial MIP on the MCA, and any set-aside.
Payout and cost
A fixed-rate HECM is taken as a single lump sum and never grows. Adjustable-rate HECMs permit monthly or annual rate adjustment and offer tenure payments, term payments, or a line of credit that grows over time. Annual MIP is 0.5% of the outstanding balance. First-year draws are limited to the greater of 60% of the initial principal limit or mandatory obligations plus 10%.
Maturity
There is no monthly payment, and the loan is non-recourse. It becomes due on the last borrower's death, a sale, non-occupancy beyond 12 months, or failure to pay property charges or maintain the property.
Worked example
MCA $500,000, factor 0.55, so the principal limit is $275,000. Mandatory obligations of $25,000 leave $250,000 net. The first-year cap is 60% of $275,000, or $165,000, so the borrower cannot draw the entire $250,000 at closing.
Traps
- Using an appraisal above the FHA ceiling as the MCA.
- Promising a growing line of credit on a fixed-rate loan.
- Claiming the lender can foreclose once the balance passes the home's value; non-recourse status prevents that.