"How a Reverse Mortgage Works: The Lender Cannot Collect a Dollar Until a Counselor Signs Off"

Before a lender can collect a single dollar from you on a reverse mortgage, HUD (the federal housing department) sends you to a counselor at an agency HUD has approved, and the lender waits for that counselor's signed certificate. It is one of the first things I mention to a client who calls about one.

A HECM is FHA's reverse mortgage. It lets a homeowner who is 62 or older turn part of the home's value into cash with no monthly mortgage payment. The older you are, the larger the portion of that value you can reach.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, helping clients with mortgages since 1996, licensed in fifteen states, NMLS #483943, through C2 Financial Corporation. HECM stands for Home Equity Conversion Mortgage. The rules below come from HUD's own handbook and regulation, and the links are listed at the end.

If you are weighing a reverse mortgage against a line of credit, a home equity loan or a cash-out refinance, my page comparing all four puts them side by side.

A reverse mortgage pays you and sends no bill back

With a HECM, the lender pays you as a lump sum, a monthly payment, a line of credit you draw on, or a mix of those. You send nothing back each month. Interest and the yearly mortgage insurance charge are added to what you owe instead, so the balance climbs over the years rather than falling.

HUD's handbook calls a HECM non-recourse, and I like to explain that one slowly. It means you are never personally on the hook for the balance. The lender can collect only by selling the home, and if the home sells for less than the balance, the lender cannot come after you or your family for the difference.

A HECM also has to be the first mortgage on the home. If you still owe on a mortgage today, it gets paid off at closing from the money the HECM makes available, which puts the HECM first in line.

Who qualifies for a reverse mortgage?

Everyone on the loan has to be at least 62 on the closing date, and HUD sets no top age. A spouse who is not on the loan does not have to be 62.

If you are married and your spouse is younger, that matters to you. Your spouse can stay in the home after you pass away if they were married to you at closing, are named in the loan papers, and live in the home as their main residence. They then have 90 days to show they own the home or have a legal right to stay in it for life, and they keep meeting the loan's obligations. HUD calls this spouse an Eligible Non-Borrowing Spouse, and my article on a reverse mortgage with a spouse under 62 goes through it in full. For a married client, this is the part to settle first, because whether the person you share the home with can stay in it comes down to those conditions. Two of them, being married to you and being named in the loan papers, are fixed at closing, which is why I ask about a spouse's age on the first call.

The home has to be the main residence of everyone on the loan, which means the place where you spend most of the year. You can have only one. One-to-four unit homes where you live in one of the units, townhouses, manufactured homes classified as real estate, and condominium units with FHA approval all work. Co-ops and vacation homes do not.

Before approval, the lender looks at your whole financial picture. HUD calls this a financial assessment. The lender reads your credit history, your monthly cash flow, and the money left each month after your documented bills are paid. It also listens to the story behind any past credit problem. A credit score is not part of the review. HUD's handbook says scores are not a criterion for a HECM, though the lender still reads how you have paid your bills.

Counseling comes before the loan moves forward

Everyone on the loan, a spouse who is not on it, and anyone else with their name on the deed who is not on the loan completes counseling with a HUD-approved HECM counselor. At first contact, the lender gives you a list of approved agencies, and you call the agency yourself to set up the session. HUD's counselor locator is the place to search.

You are free to talk with a lender first. A lender can take your application, give you the required disclosures, explain the program and go over the figures for your age and your home. The lender cannot collect any fee until the signed counseling certificate arrives, and the loan does not move forward without it.

So the order goes like this. You talk with a lender, you meet with the counselor, who works for the agency and not for the lender, and once the certificate comes in, the file moves and fees begin.

How much can you borrow with a reverse mortgage in 2026?

The first figure is the maximum claim amount. It is the lowest of three numbers: the appraised value of the home, the sale price if you are buying, and HUD's national limit. HUD's Mortgagee Letter 2025-22 is the notice that sets that national limit at $1,249,125 for loans taken out in 2026. It is one figure for the whole country, equal to 150% of $832,750, the most Freddie Mac buys on a regular mortgage.

The second figure is the principal limit, which is the amount the loan actually makes available to you. HUD works it out from your maximum claim amount, the age of the youngest person on the loan (counting a spouse who is not on it), and the expected interest rate. HUD publishes tables for this. The result is always a portion of the home's value, and it rises with age, so a 78-year-old is offered a larger share than a 65-year-old with the same home. If you still owe on a mortgage, that payoff comes out of the principal limit first.

That means the national limit is not the amount you can borrow. It only caps the value the loan is figured from. A reverse mortgage can also help you buy a home, and my article on buying a home with a HECM after 62 covers the cash you bring to that purchase.

The mortgage insurance on a HECM

Every HECM carries FHA mortgage insurance, and it comes as two charges. The first is 2% of the maximum claim amount, paid in cash or financed into the loan at closing. The second is 0.50% of what you owe, figured monthly and added to the balance, so it is never billed to you. Both rates are in HUD's Mortgagee Letter 2017-12, and the August 2026 handbook carries the same rates.

The lender's origination fee, which is what the lender charges for making the loan, and the other closing costs are on the lender's estimate for your file.

What do you still have to pay on a reverse mortgage?

You stop making a mortgage payment, and you still take care of the home itself. You keep it in good repair, pay the property charges, and keep it insured, including flood insurance where the home needs it.

Property charges are your property taxes, your homeowners and flood insurance, any condominium or homeowners association dues, and special assessments, which are one-time charges a local government or association adds for something like a new road or a roof repair on a shared building. Unpaid property charges can bring the loan due, so it helps to decide at the start how they will be paid.

One way is a Life Expectancy Set-Aside, often shortened to LESA. The lender sets aside part of the amount available to you to pay your property taxes and insurance for you, so those bills never depend on remembering a due date. You can ask for one voluntarily. The tradeoff is that money set aside for those bills is money you cannot draw for anything else.

When does a reverse mortgage have to be paid back?

The loan comes due when the home stops being the main residence of anyone on the loan. Two events make that happen on their own. One is when the last person on the loan passes away, and the other is when everyone on the loan signs the home over to someone else. If your spouse meets the conditions I described earlier, the due date after your death is put off for as long as they keep meeting them.

The lender can also call the loan due, with HUD's approval, in four more situations:

• The home stops being your main residence for a reason other than death.
• You are away for more than 12 months in a row because of a physical or mental illness, and nobody else on the loan lives there.
• The property charges go unpaid.
• Another obligation under the mortgage is not met.

Once the loan is due, you, your spouse, your estate or your heirs have four ways to settle it. They can pay the balance, or they can sell the home. They can hand the home to the lender to settle the debt without a foreclosure, which is called a deed in lieu of foreclosure. Or they can fix whatever caused the loan to come due, such as paying overdue taxes. If the home is sold to settle the loan, your family never has to pay more than the home is worth: HUD lets them clear it for the lesser of the balance or 95% of the appraised value.

An illustration, with made-up numbers

The homeowner and the figures below are made up to show the steps. Your own figures will differ.

Ruth is 71 and lives in a single-family home. She has a small mortgage balance left on it, and she finishes counseling before the file moves on. The appraisal comes back.

  THE MAXIMUM CLAIM AMOUNT, 2026
  ------------------------------------------------
  Appraised value                        $480,000
  HUD's 2026 national limit            $1,249,125
  Maximum claim amount (the lower)       $480,000
  Initial mortgage insurance (2%)          $9,600

The principal limit is a share of that $480,000. HUD's tables decide the exact share, it depends on Ruth's age and the expected rate, and it rises with age. Those tables are not published on this page, so I will not put a made-up share on it. Call it Ruth's principal limit.

From that principal limit, the loan pays off her remaining mortgage balance at closing, say $60,000, and pays the closing costs, including the $9,600 insurance charge. Whatever is left is what Ruth can take as cash, a monthly payment or a line of credit. In words, that is her principal limit, minus $60,000, minus $9,600, minus the other closing costs. Every dollar of those two made-up amounts comes out first, so the principal limit has to be larger than $69,600 before she receives anything. A lender's estimate for her age and home gives the real number.

After closing, interest and the 0.50% yearly insurance charge are added to what she owes each month. She keeps paying her property taxes and her homeowners insurance, and the loan stays open for as long as the home is her main residence.

Your next step

A reverse mortgage is quoted by the lender for your own age, home and rate, and it is not priced in the rate tool on this site, because that tool prices first mortgages for regular purchases and refinances. You are welcome to call me at (843) 765-0000 or email me at jeff@solverya.com. Please include your age, your spouse's age if you are married, a rough idea of the home's value, and any mortgage balance still on it.

If the real question is whether to pull cash out of the home with a regular mortgage, a cash-out refinance replaces your first mortgage with a larger one. The rate tool can price that scenario for you. You can choose a rate option that works best for you, and that selection can change later. Second mortgages and HELOCs explained covers the third route, a line of credit or a fixed second behind the first mortgage you keep.

Sources

• HUD Handbook 4000.1, update issued August 12, 2026: the HECM section on non-recourse, age, the no-credit-score rule, property types, counseling, limits, mortgage insurance and the Life Expectancy Set-Aside.
• The HECM regulation, 24 CFR Part 206, as it read on October 28, 2026: non-recourse and first-lien rules, age and spouse deferral, main residence, financial assessment, due-and-payable events and settling the loan.
• Mortgagee Letter 2025-22, issued December 11, 2025: the 2026 national limit.
• Mortgagee Letter 2017-12: the mortgage insurance rates.
• HUD's counselor locator: approved HECM counseling agencies.

Nothing here is a loan approval, a denial or a commitment to lend. HUD's rules and its limit are as of the dates given above, and the lender applies them to your own file.

Common questions

How does a reverse mortgage work?

A HECM, FHA's reverse mortgage, pays a homeowner who is 62 or older from the value of the home they live in, with no monthly mortgage payment. Interest and the yearly mortgage insurance charge are added to the balance, so what is owed grows over time. The loan is non-recourse, which means no one is personally liable for the balance, and it comes due when the home stops being the main residence of anyone on the loan.

Do you have to go to counseling before getting a reverse mortgage?

Yes, a reverse mortgage requires counseling with a HUD-approved HECM counselor for everyone on the loan, any spouse who is not on it, and any other owner who is not on the loan. The lender can take your application before counseling is finished, but it cannot collect any fee until it has the signed counseling certificate.

What is the reverse mortgage limit for 2026?

The 2026 reverse mortgage limit is one national maximum claim amount set by HUD, equal to 150 percent of the conforming limit (the most Freddie Mac buys on a regular mortgage), and it is the same in every state. Your own maximum claim amount is the lowest of the appraised value, the sale price on a purchase and that national limit. The amount you can actually borrow is a smaller portion of that, and it rises with age.

Do you still pay property taxes and insurance with a reverse mortgage?

Yes, you still pay property taxes and insurance on a home with a reverse mortgage. You also keep the home in good repair and carry flood insurance where it is required. Property taxes, insurance, association dues and special assessments are called property charges, and leaving them unpaid can bring the loan due.

What happens to a reverse mortgage when the homeowner dies?

A reverse mortgage comes due when the last person on the loan passes away, unless an Eligible Non-Borrowing Spouse qualifies to stay in the home. The estate or heirs can pay the balance, sell the home, hand the home to the lender in a deed in lieu of foreclosure, or fix whatever caused the loan to come due. On a sale, the family can clear the loan for the lesser of the balance or 95 percent of the appraised value, and the lender cannot take a judgment against them for any difference.