Reverse Mortgages (HECM) on the SAFE Exam (2026 Guide)

Reverse mortgages are a small slice of the market, but they show up on the SAFE MLO exam because they turn the usual loan logic upside down. Instead of the balance going down each month, it goes up. Instead of the borrower making payments, the lender makes payments to the borrower. And instead of a fixed maturity date, the loan comes due when something happens: the last borrower dies, sells, or moves out. The exam tests whether you know who qualifies, how much they can get, what it costs, and when it has to be repaid.

This guide covers the FHA-insured Home Equity Conversion Mortgage (HECM), which is the reverse mortgage the exam focuses on, plus the Truth in Lending rules that apply to every reverse mortgage. The rules come from the National Housing Act (12 U.S.C. 1715z-20), HUD's HECM regulations (24 CFR part 206), HUD Mortgagee Letters, and Regulation Z, all checked on October 27, 2026. This is study information, not legal advice.

The short version

A reverse mortgage is a nonrecourse loan secured by the borrower's principal dwelling that is not due until the borrower dies, transfers the home, or stops living there (or defaults).
For a HECM, the youngest borrower must be 62 or older at closing, the home must be the borrower's principal residence, and the borrower must complete counseling with an independent HUD-approved counselor before the loan moves forward.
The amount available is the principal limit: the maximum claim amount times a HUD factor based on the age of the youngest borrower (or eligible non-borrowing spouse) and the expected interest rate. The 2026 national maximum claim amount is $1,249,125.
Costs include an initial MIP of 2% of the maximum claim amount, an annual MIP of 0.50% of the balance, and an origination fee capped at the greater of $2,500 or 2% of the first $200,000 plus 1% above that, with a $6,000 maximum.
The borrower must still pay property taxes and insurance and keep the home in repair. Failing to do so can make the loan due.
Reverse mortgages are exempt from TRID, ATR/QM, and HOEPA. Instead, Regulation Z requires special reverse mortgage disclosures, including a total annual loan cost (TALC) table, at least 3 business days before consummation.

What a reverse mortgage is

Regulation Z defines a reverse mortgage transaction in 12 CFR 1026.33(a). It is a nonrecourse consumer credit obligation in which a mortgage or deed of trust is created in the consumer's principal dwelling to secure one or more advances, and the principal, interest, and any shared appreciation or equity are due (other than in default) only after the consumer dies, the dwelling is transferred, or the consumer stops occupying it as a principal dwelling.

On a forward loan, the borrower pays the debt down and equity rises. On a reverse mortgage, the borrower draws on equity, interest and mortgage insurance are added to the balance, and the debt rises while equity falls: a rising-debt, falling-equity loan.

"Nonrecourse" is the other key word. The lender can look only to the home for repayment. HUD's rules for HECMs (24 CFR 206.27(b)(8)) say the borrower has no personal liability for the loan balance, the lender may enforce the debt only through sale of the property, and the lender may not get a deficiency judgment if the loan is foreclosed. If the balance grows larger than the home's value, FHA mortgage insurance covers the gap, not the borrower or the heirs.

HECM eligibility: borrower, home, and counseling

The HECM program is authorized by section 255 of the National Housing Act and run by FHA under 24 CFR part 206. Here is who and what qualifies:

Age. The youngest borrower must be 62 or older at the time of loan closing (24 CFR 206.33).
Principal residence. The home must be the principal residence of each borrower at closing. On a HECM for Purchase, where the reverse mortgage is used to buy the home, each borrower must move in within 60 days of closing (24 CFR 206.39).
Property. The loan must be a first mortgage on a home held in fee simple or a qualifying long-term leasehold, and the home must be a dwelling designed principally as a residence. A one-family condominium unit is also eligible (24 CFR 206.45). Existing liens are paid off with the HECM proceeds at closing.
Financial assessment. Before approval, the lender must assess the borrower's credit history, cash flow, and residual income to judge whether the borrower can keep paying property charges and whether the HECM is a sustainable solution (24 CFR 206.37). It must be applied without discrimination, consistent with the Fair Housing Act and ECOA.
Counseling. Every borrower, and any non-borrowing spouse or non-borrowing owner, must receive counseling from a HUD-approved HECM counselor (24 CFR 206.41).

Counseling is independent by law

Counseling is the HECM rule the exam tests most. At the first contact, the lender must give the prospective borrower a list of HUD-approved HECM counselors. The counselor must be an independent third party that is not associated with or paid by anyone involved in originating or servicing the loan, funding it, or selling annuities, investments, long-term care insurance, or any other financial or insurance product (12 U.S.C. 1715z-20(d)(2)(B)).

The statute's counseling protocol requires the counselor to discuss options other than a HECM, other ways to convert home equity (such as sale-leaseback and property tax deferral), the financial implications of a HECM, and the fact that it may have tax consequences, affect eligibility for federal and state assistance programs, and affect the estate and heirs (12 U.S.C. 1715z-20(f)). When counseling is done, the counselor issues a certificate, and the borrower gives the lender a copy (24 CFR 206.41(c)).

No cross-selling

Two more statutory protections are easy exam points. First, the borrower cannot be required to buy an insurance, annuity, or similar product as a condition of getting a HECM, except customary products like title, hazard, and flood insurance (12 U.S.C. 1715z-20(o)). Second, anyone who participates in originating a HECM must either stay out of other financial or insurance product sales or maintain firewalls so the people originating the loan have no involvement with, or incentive to sell, other financial products to the borrower (12 U.S.C. 1715z-20(n)).

How much can the borrower get?

Three terms drive the math. They come from the definitions in 24 CFR 206.3.

Maximum claim amount (MCA): the lesser of the appraised value, the sales price (on a HECM for Purchase), or the national HECM limit. HUD Mortgagee Letter 2025-22 sets the limit at $1,249,125 for case numbers assigned in calendar year 2026, which is 150% of the $832,750 national conforming loan limit. The same limit applies everywhere, including Alaska, Hawaii, Guam, and the Virgin Islands.
Principal limit: the maximum amount available, calculated from the MCA using HUD factors that depend on the age of the youngest borrower or eligible non-borrowing spouse and the expected average interest rate. Older borrowers and lower rates mean a higher factor and more money.
Principal limit growth: after the first month, the principal limit grows each month at one-twelfth of the loan's interest rate plus one-twelfth of the annual MIP rate. That is why an unused HECM line of credit gets larger over time.

Worked example (illustrative factor). A home appraises at $400,000 and the borrower is refinancing, so the MCA is $400,000 (the lesser of value and the $1,249,125 limit). If HUD's table gives a principal limit factor of 0.45 for this borrower's age and expected rate, the principal limit is $400,000 x 0.45 = $180,000. Only that amount, not the full value of the home, is available.

The first-year disbursement limit

HUD limits how much can be drawn at closing and during the First 12-Month Disbursement Period. Under Mortgagee Letter 2013-27 (and 24 CFR 206.25(a)), the limit is the greater of 60% of the principal limit or mandatory obligations plus 10% of the principal limit. Mandatory obligations are the costs that must be paid at closing, such as the initial MIP, the origination fee, other closing costs, and payoff of existing liens.

Small existing mortgage: principal limit $180,000, mandatory obligations $30,000. 60% is $108,000; $30,000 + $18,000 is $48,000. The greater is $108,000, so the borrower can receive up to $78,000 beyond the mandatory obligations in year one.
Large existing mortgage: same principal limit, mandatory obligations $130,000. 60% is $108,000; $130,000 + $18,000 is $148,000. The greater is $148,000, so after paying off the existing liens and costs the borrower can receive $18,000 in year one.

For more practice with percentages, see NMLS exam math.

Payment options

HUD's payment options are listed in 24 CFR 206.19. Know all six by name:

Tenure: equal monthly payments for as long as at least one borrower lives in the home as a principal residence and the loan is not otherwise due.
Term: equal monthly payments for a fixed number of months the borrower chooses.
Line of credit: draws at times and in amounts the borrower chooses, up to the available limit. The lender must send a line of credit draw within 5 business days of a written request (24 CFR 206.27(b)(1)).
Modified tenure: tenure payments plus a line of credit set aside.
Modified term: term payments plus a line of credit set aside.
Single lump sum: one disbursement at closing. This option is available only on fixed-rate HECMs.

So a fixed-rate HECM is a single draw at closing, while monthly payments and lines of credit come with an adjustable rate. The ARM guide covers indexes and margins.

What a HECM costs

Initial MIP: 2% of the maximum claim amount, for all borrowers, no matter how much they draw at closing (Mortgagee Letter 2017-12).
Annual MIP: 0.50% of the outstanding balance (Mortgagee Letter 2017-12). The monthly MIP may be added to the loan balance (24 CFR 206.27(b)(7)).
Origination fee: the greater of $2,500 or 2% of the first $200,000 of the MCA plus 1% of the MCA above $200,000, with a total cap of $6,000. It may be fully financed (24 CFR 206.31(a)(1)).
Other closing costs: reasonable and customary amounts, not more than the lender actually paid, for items such as recording, credit report, survey, title, the appraisal, and flood certification (24 CFR 206.31(a)(2)).

Origination fee examples. MCA $100,000: 2% is $2,000, so the $2,500 floor applies, giving $2,500. MCA $300,000: $4,000 + $1,000 = $5,000. MCA $400,000: $4,000 + $2,000 = $6,000, which is the cap. Any MCA above $400,000 is still capped at $6,000.

Initial MIP example. MCA $400,000 x 2% = $8,000, even if the borrower draws very little at closing.

Borrower obligations and when the loan comes due

A reverse mortgage has no monthly principal and interest payment, but it is not obligation-free. Under 24 CFR 206.27, the borrower must insure the home against hazards (and flood when required), keep it in good repair, pay property charges such as taxes and insurance, and not allow liens that are not subordinate to the HECM. Where the financial assessment shows a risk, HUD can require a Life Expectancy Set-Aside (LESA), a portion of the principal limit held back to pay property taxes and insurance (24 CFR 206.19(f)(2)).

The loan becomes due and payable when:

a borrower dies and the home is not the principal residence of at least one surviving borrower (subject to the non-borrowing spouse deferral below);
a borrower conveys all title and no other borrower keeps title;
the home stops being the principal residence of a borrower for reasons other than death, and no other borrower lives there;
a borrower is away for more than 12 consecutive months because of physical or mental illness, and no other borrower lives there;
the borrower does not pay property charges; or
another obligation under the mortgage is not performed.

The first two are automatic; the others require HUD approval before the lender can call the loan due (24 CFR 206.27(c)). When the loan is due, the lender notifies the borrower, estate, or heirs, who get 30 days from the notice to pay the balance in full or sell the home. HUD sets the minimum acceptable sale price, which may not be more than 95% of the appraised value (24 CFR 206.125(a)(2)). Because the loan is nonrecourse, the heirs never owe more than the home can bring.

Non-borrowing spouses

Sometimes only one spouse is on the HECM, often because the other is under 62. HUD's rules protect an Eligible Non-Borrowing Spouse by deferring the due-and-payable status after the last borrower dies (24 CFR 206.55). To qualify, the spouse must:

have been married to the borrower at closing and remained married for the borrower's lifetime;
have been disclosed to the lender and named in the loan documents as an eligible non-borrowing spouse; and
have lived in, and continue to live in, the home as a principal residence.

After the borrower's death, the spouse must establish legal ownership or another legal right to remain in the home for life within 90 days, and keep meeting the loan's obligations, such as paying taxes and insurance. During the deferral period the spouse can stay in the home, but no further loan disbursements are made (24 CFR 206.27(b)(1)). A spouse who did not meet the qualifying attributes at closing cannot become eligible later. The age of an eligible non-borrowing spouse is also used in figuring the principal limit, which usually lowers it.

Regulation Z rules for reverse mortgages

TILA applies to every reverse mortgage, FHA-insured or not.

Reverse mortgage disclosures (1026.33)

In addition to other required disclosures, the creditor must give the consumer:

a notice that the consumer is not obligated to complete the transaction just because they received disclosures or signed an application;
a table of total annual loan cost (TALC) rates, a good-faith projection of the total cost of credit;
an itemization of loan terms, charges, the age of the youngest borrower, and the appraised value; and
an explanation of the TALC table.

The TALC projections use assumed home appreciation rates of 0%, 4%, and 8% and assumed loan periods of 2 years, the youngest consumer's actuarial life expectancy, and 1.4 times that life expectancy (with 0.5 times life expectancy as an option) (12 CFR 1026.33(c)). These disclosures must be furnished at least 3 business days before consummation of a closed-end reverse mortgage or before the first transaction under an open-end plan (12 CFR 1026.31(c)(2)).

Early disclosures and fees

A reverse mortgage that is also subject to RESPA gets early TILA disclosures under 12 CFR 1026.19(a): good-faith estimates delivered or mailed within 3 business days after the creditor receives the written application, and no later than the seventh business day before consummation. No one may charge a fee before the consumer receives them, except a bona fide and reasonable fee for a credit report.

What does not apply

TRID: the Loan Estimate requirement in 1026.19(e) covers closed-end real estate loans "other than a reverse mortgage subject to 1026.33," so reverse mortgages do not use the Loan Estimate and Closing Disclosure. See the TRID guide.
Ability-to-repay and QM: 1026.43(a)(3)(i) exempts reverse mortgages from the ATR requirements. HUD's financial assessment does that job for HECMs. See the ATR/QM guide.
HOEPA: 1026.32(a)(2)(i) exempts reverse mortgages from the high-cost mortgage rules. See the HOEPA and HPML guide.

Proprietary reverse mortgages

Some lenders offer their own reverse mortgages that are not FHA-insured, often for homes above the HECM limit. HUD's HECM program rules do not govern those loans, but Regulation Z's reverse mortgage rules still apply.

Common exam traps

"The borrower must be 62." It is the youngest borrower who must be 62 at closing. A non-borrowing spouse can be younger.
"The borrower no longer has to pay taxes or insurance." False. Unpaid property charges are a default that can make the loan due.
"The heirs owe the balance." No. It is nonrecourse; the heirs can sell the home or pay it off, and FHA insurance covers any shortfall.
"The lender picks the counselor." No. The lender hands over a list of HUD-approved counselors, and the counselor must be independent of the lender and of anyone selling financial products.
"A reverse mortgage gets a Loan Estimate." No. Reverse mortgages are carved out of TRID and get the 1026.33 disclosures, including the TALC table.
Origination fee math: 2% of the first $200,000, 1% above that, a $2,500 floor, and a $6,000 cap. The initial MIP is 2% of the maximum claim amount, not the amount drawn.
Cross-selling: requiring or steering the borrower into an annuity or insurance product to get the HECM is prohibited. See also mortgage fraud red flags.

Reverse mortgages sit in the General Mortgage Knowledge domain next to conventional, FHA, VA, and USDA loans; the loan types guide and the SAFE content outline show how they fit together. To test yourself, try the free NMLS SAFE practice test.

Sources

Checked October 27, 2026:

Frequently asked questions

How old do you have to be to get a reverse mortgage?

For an FHA-insured HECM, the youngest borrower must be 62 or older at loan closing. A spouse who is younger can be named as an eligible non-borrowing spouse, and that spouse's age is used in figuring how much can be borrowed.

Is HECM counseling required?

Yes. Every borrower, and any non-borrowing spouse or non-borrowing owner, must receive counseling from a HUD-approved HECM counselor who is independent of the lender and of anyone selling annuities, insurance, or other financial products. The lender must give a list of approved counselors at the first contact, and the borrower gives the lender a copy of the counseling certificate.

What is the 2026 HECM limit?

HUD Mortgagee Letter 2025-22 sets the HECM maximum claim amount at $1,249,125 for case numbers assigned from January 1 through December 31, 2026. It is 150% of the $832,750 national conforming loan limit and applies in all areas.

When does a reverse mortgage have to be repaid?

When the last borrower dies (subject to an eligible non-borrowing spouse deferral), sells or conveys the home, stops living there as a principal residence, is away more than 12 consecutive months due to illness, fails to pay property taxes or insurance, or breaks another loan obligation. The heirs can pay off the loan or sell the home, and because the loan is nonrecourse, they never owe more than the home is worth.

What are the HECM mortgage insurance premiums?

For case numbers assigned on or after October 2, 2017, the initial MIP is 2% of the maximum claim amount and the annual MIP is 0.50% of the outstanding loan balance, per HUD Mortgagee Letter 2017-12. The annual MIP is added to the loan balance.

Do reverse mortgages get a Loan Estimate and Closing Disclosure?

No. TRID excludes reverse mortgages subject to 12 CFR 1026.33. Instead, the creditor gives reverse mortgage disclosures, including a total annual loan cost table, at least 3 business days before consummation or the first transaction under an open-end plan. Reverse mortgages are also exempt from the ability-to-repay and HOEPA high-cost rules.

Get ready for the SAFE test

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