What are the underwriting guidelines for a Home Equity Conversion Mortgage (HECM) mortgage?

In general, the underwriting guidelines for Home Equity Conversion Mortgages (HECM) are:

  • The youngest borrower must be at least 62 years of age or older. 
  • The property must be a 1-4 unit property or a condominium unit or a manufactured home that meets HUD guidelines for manufactured housing.  
  • The borrower must occupy the property as his/her principal residence. 
  • The property need not be debt free; however the indebtedness on an existing lien must be satisfied at closing or subordinated to the HECM mortgage. 
  • The borrower must receive counseling and receive a counseling certificate to document such counseling was obtained (unless transaction is a HECM existing refinance and all requirements for waiver have been met per Mortgagee Letter (ML) 09-21). 
  • Instead of calculating a monthly principal and interest payment, the Mortgagee (lender) must calculate a principal limit to determine the payments a borrower will receive. 
  • The Mortgagee must perform the checks for CAIVRS and the LDP and Suspension/Debarment List.  
  • The Mortgagee must obtain an appraisal that meets current FHA appraisal requirements. 
  • Perform a financial assessment of the borrower that includes an evaluation of credit history, property charge payment history, and the calculation of residual income.

For additional information see HECM information in Handbook 4235.1, available at:  
https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh  and

HECM Mortgagee Letters are available at: 

HECM Final Rule:   Federal Register https://www.govinfo.gov/content/pkg/FR-2017-01-19/pdf/2017-01044.pdf



All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-03447