Step 1: Determine Whether a HECM Fits Your Goals
Before taking out a reverse mortgage, ask:
- Do I want to remain in this home?
- Could I downsize instead?
- Do I want to leave this home to heirs?
- How long do I expect to live here?
- Can I continue paying taxes and insurance?
- How will this affect future equity?
Step 2: HUD-Approved Counseling
HECM borrowers must complete counseling with a HUD-approved housing counselor.
The purpose is to help the homeowner understand the costs, alternatives, obligations, loan structure and consequences. This is an important consumer-protection feature, not a formality.
Step 3: Apply With a HECM Lender
The lender evaluates age, property, equity, existing mortgage, credit and financial assessment, property charges, occupancy, and other program requirements.
Step 4: Appraisal
The property must be appraised. The home's value affects how much equity may be available under the program.
HECM proceeds are not simply “whatever amount you want.”
Step 5: Financial Assessment
The lender evaluates whether the borrower can continue meeting responsibilities such as taxes, insurance and property maintenance.
Depending on the assessment, funds may need to be set aside to cover certain future property charges.
Step 6: Existing Mortgage Gets Paid Off
If the homeowner already has a mortgage, it generally must be satisfied as part of the HECM closing.
HECM proceeds may be used to pay it off.
Step 7: Borrower Receives Remaining Available Proceeds
Depending on the chosen structure and applicable rules, proceeds can be available in different ways: lump sum, line of credit, monthly advances, or a combination, subject to current program rules and the chosen interest-rate structure.
Step 8: No Traditional Monthly Mortgage Payment
The homeowner generally does not send monthly principal-and-interest payments.
Instead, interest and charges accrue, and the loan balance grows.
Step 9: Homeowner Continues Property Obligations
This includes property tax, homeowners insurance, applicable flood insurance, HOA dues and maintenance.
Failure to meet these responsibilities can create default.
Step 10: Loan Eventually Becomes Due
Common triggers include the sale of the home, the death of the last borrower or qualified protected occupant, a permanent move, the principal-residence requirement no longer being met, or certain defaults.
A Worked Example
Hypothetical example
Homeowner age
72
Home value
$650,000
Existing mortgage
$75,000
The HECM first satisfies the existing mortgage. Remaining available proceeds are determined under the current HECM rules. The homeowner no longer makes the old mortgage payment but continues paying taxes, insurance, HOA dues and maintenance.
Figures are hypothetical for illustration only. Actual principal limits and proceeds depend on the borrower's age, the property value, current interest rates, principal-limit factors and program rules in effect at closing.
How Lisa Helps
Lisa can help with the real estate decisions around a reverse mortgage: establish market value, compare staying versus selling or downsizing, and coordinate with the HECM lender. Lisa is a REALTOR®, not a reverse-mortgage lender: a licensed HECM lender and HUD-approved counselor determine eligibility, proceeds, terms and obligations, and current FHA rules govern the program.
