FHA Single Family Housing Policy Handbook 4000.1, Part II — b. General HECM Insurance Eligibility (05/25/2025)

FHA Single Family Housing Policy Handbook 4000.1, Part II — b. General HECM Insurance Eligibility (05/25/2025)

b. General HECM Insurance Eligibility (05/25/2025) i. HECM Purpose FHA insures mortgages secured by HECM Properties under section 255 of the National Housing Act. The intent of the HECM program is to provide elderly homeowners the option of using the equity in their homes to address economic hardship caused by the increasing costs of health, housing, and subsistence needs at a time of reduced income. (A) HECM Traditional HECM Traditional refers to a transaction where a Borrower with legal title, leasehold interest, or possessory interest obtains a HECM to access equity in their current Principal Residence. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 566 Last Revised: 11/26/2025 (B) HECM for Purchase HECM for Purchase refers to a transaction where the Borrower uses the HECM to finance the purchase of an existing one- to four-unit residence where the Borrower will occupy one unit as their Principal Residence. The Borrower may use a HECM for Purchase transaction to satisfy an outstanding payment obligation associated with a land contract, contract for deed, or other similar purchase arrangement that will ensure the Property will meet FHA’s title requirements. For additional requirements that are applicable to a HECM for Purchase transaction, see HECM for Purchase. (C) HECM-to-HECM Refinance HECM-to-HECM Refinance (HECM Refinance) refers to a new HECM where the proceeds will be used to pay off the property indebtedness of the current HECM and any existing eligible lien. For additional requirements that are applicable to a Refinance transaction, see HECM Refinance. ii. Borrower Eligibility (A) General Borrower Eligibility Requirements In order to obtain FHA-insured financing, all Borrowers must meet the eligibility criteria in this section. (1) Minimum Age Requirement All Borrowers must be at least 62 years of age as of the Closing Date. There is no maximum age limit for a Borrower. (2) Principal Residence (a) Definition A Non-Borrowing Spouse (NBS) refers to the spouse of a HECM Borrower who is also not a Borrower. Eligible Non-Borrowing Spouse (NBS) refers to an NBS who meets all Qualifying Attributes for a Deferral Period. Principal Residence refers to the dwelling where the Borrower and, if applicable, an NBS maintain their permanent place of abode, and typically spend the majority of the calendar year. A person may have only one Principal Residence at any one time and the Property is considered to be the Principal Residence: II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 567 Last Revised: 11/26/2025 • of any Borrower who is temporarily in a health care institution provided the Borrower’s confinement to a health care institution does not exceed 12 consecutive months; • of any NBS who is temporarily in a health care institution, as long as the Property is the Principal Residence of their Borrower spouse, who physically resides in the Property; • of any NBS who occupies the Property as their Principal Residence, when the Borrower resides in a health care institution for a length of time; and • during a Deferral Period of the NBS, who is temporarily in a health care institution, provided the Eligible NBS physically occupied the Property immediately prior to entering the health care institution and such confinement does not exceed 12 consecutive months. See Mortgagee Optional Election Assignment for more information. (b) Standard The Property must be the Principal Residence of each Borrower and a Borrower may have only one Principal Residence at any one time. (3) Citizenship and Immigration Status U.S. citizenship is not required for HECM eligibility. (4) Residency Requirements The Mortgagee must determine the residency status of the Borrower based on information provided on the mortgage application and other applicable documentation. A Social Security card is not sufficient to prove immigration or work status. The following categories of individuals are eligible for FHA-insured financing in accordance with the requirements set forth below: (a) Permanent Residents (i) Standard A Borrower with lawful permanent resident status may be eligible for FHA-insured financing provided the Borrower satisfies the same requirements, terms, and conditions as those for U.S. citizens. (ii) Required Documentation The HECM file must include evidence of lawful permanent residence and indicate that the Borrower is a lawful permanent resident on the RLARM. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 568 Last Revised: 11/26/2025 The U.S. Citizenship and Immigration Services (USCIS) within the Department of Homeland Security provides evidence of lawful permanent resident status. (b) Citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau (i) Standard A Borrower with citizenship in the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau may be eligible for FHA-insured financing provided the Borrower satisfies the same requirements, terms, and conditions as those for U.S. citizens. (ii) Required Documentation For Borrowers who are citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau, the HECM file must include evidence of such citizenship. (5) Borrower Ownership and Obligation Requirements To be eligible, all Borrowers must hold title, leasehold interest, or possessory interest to the Property in their own name or in the name of a living trust at closing, be obligated on the Note or credit instrument, and sign all security instruments. In community property states, the Borrower’s spouse is not required to be a Borrower. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under state law. (a) Eligibility Requirements for Property Held in Living Trusts (i) Definitions Living Trust refers to a type of trust that is created and takes effect during the creator’s lifetime. Trustee refers to the person charged with the administration of the Living Trust. Primary Beneficiary refers to a person that is first in line to receive the benefits of the Living Trust. Contingent Beneficiary refers to a person who is entitled to the benefits of the trust only upon the death of the primary beneficiary. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 569 Last Revised: 11/26/2025 (ii) Standard The Mortgagee may originate a HECM that is held by a Living Trust, either revocable or irrevocable, provided the following requirements are met: • primary beneficiaries of the Living Trust are 62 years of age as of the Closing Date; • primary beneficiaries attend and complete HECM counseling; • primary beneficiaries must be an eligible Borrower; • primary beneficiaries occupy the subject Property as their Principal Residence until the mortgage lien is released or will occupy the subject Property as their Principal Residence within 60 Days of Closing for a HECM for Purchase transaction; • new beneficiaries must not be added to the Living Trust; • primary beneficiaries must sign the loan agreement; • the trustee and primary beneficiaries must sign the Note; • the Mortgage, and other legal documents, are signed by all parties necessary to create a valid first Mortgage and second Mortgage, if applicable, which may include: • the trustee; and • primary and contingent beneficiaries; and • the Mortgagee has determined that the Living Trust: • is valid and enforceable; • provides each beneficiary with a legal right to occupy the Property for the remainder of their life; and • provides for a Notice to the Mortgagee of any changes to the trust, including occupancy status of the Property, or any transfer of beneficial interest in the Property. Contingent beneficiaries do not need to meet eligible Borrower requirements and do not need to attend HECM counseling unless the contingent beneficiary is an individual otherwise required to receive counseling, e.g., an Eligible or Ineligible NBS or Non-Borrowing Owner. The trustee is not required to attend HECM counseling unless the trustee is also a primary beneficiary or an individual otherwise required to receive counseling, e.g., an Eligible or Ineligible NBS or Non-Borrowing Owner. (iii)Living Trusts and Security Instruments The name of the Living Trust must appear on the security instrument, such as the Mortgage, deed of trust, or security deed. The name of the Borrower must appear on the security instrument when required to create a valid lien under state law. The name of the Borrower II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 570 Last Revised: 11/26/2025 must also be the same name on the Note and the trust or trust documentation. The name of the Borrower is not required to appear on the property deed or title. (iv) Required Documentation The Mortgagee must obtain a copy of the trust agreement or the Declaration of Trust to ensure all Living Trust eligibility requirements are met. (b) Transfer of the Property into a Living Trust The Borrower under an insured HECM may transfer the Property to a Living Trust without causing the Mortgage to become Due and Payable if the Mortgagee finds that the Living Trust meets all Eligibility Requirements for Property Held in Living Trusts that would have applied if the trust owned the Property at Closing. The Mortgagee may require the trust to formally assume the Borrower’s obligation to repay the debt as stated in the Note if considered advisable to avoid difficulty in enforcement of the Note and Mortgage. (c) Transferring of the Property from a Living Trust If the Living Trust is terminated or the Property is otherwise transferred from an eligible trust that is holding the Property, the Mortgage will not become Due and Payable, provided that one or more of the original Borrowers: • continue to occupy the Property as a Principal Residence; and • continue to retain title to the Property in Fee Simple or on a Leasehold Interest. (d) Eligibility Requirements for Borrowers Holding Only Life Estates (i) Standard A Borrower who holds only a life estate is eligible for a HECM, only if all holders of any reversionary or remainder interest will also execute the Mortgage and attend HECM counseling. (ii) Required Documentation For life estates, the Mortgagee must obtain a copy of the document granting the Borrower a life estate. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 571 Last Revised: 11/26/2025 (6) Marital Status The Mortgagee must require all Borrowers to state whether they are legally married at the time of initial application and confirm this information at closing by signing the appropriate certification. (7) Social Security Number (a) Standard Each Borrower must provide evidence of their valid SSN to the Mortgagee. Exception Individuals employed by the World Bank, a foreign embassy, or equivalent employer identified by HUD are not required to provide an SSN. (b) Required Documentation The Mortgagee must: • validate and document an SSN for each Borrower by: • entering the Borrower’s name, date of birth, and SSN in the Borrower/address validation screen through FHAC; and • examining the Borrower’s original pay stubs, IRS Form W-2s, Wage and Tax Statement, valid Tax Returns obtained directly from the IRS; or other document relied upon to process the HECM; and • resolve any inconsistencies or multiple SSNs for individual Borrowers that are revealed during HECM processing using a service provider to verify the SSN with the SSA. (8) Borrower Minimum Decision Credit Score (a) Definition The Minimum Decision Credit Score (MDCS) refers to the credit score reported on the Borrower’s credit report when all reported scores are the same. Where three differing scores are reported, the middle score is the MDCS. Where two differing scores are reported, the MDCS is the lowest score. Where only one score is reported, that score is the MDCS. (b) Standard There is no MDCS for a HECM. Credit scores are not a criterion for processing or evaluating a HECM. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 572 Last Revised: 11/26/2025 (9) Delinquent FHA-insured Mortgages (a) Principal Residences Borrowers delinquent on an FHA-insured Mortgage on their Principal Residence must pay off the Delinquent Mortgage prior to or at closing of the HECM. (b) Other FHA-Insured Mortgages Borrowers delinquent on an FHA-insured Mortgage that is not their Principal Residence are ineligible for a new FHA-insured HECM unless the delinquency is resolved. (10) Delinquent Federal Tax Debt (a) Standard Borrowers with delinquent Federal Tax Debt are ineligible. Federal tax liens may remain unpaid if the Borrower has entered into a valid repayment agreement with the federal agency owed to make regular payments on the debt and the Borrower has made timely payments for at least three months of scheduled payments. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments. The Mortgagee must include the payment amount in the agreement in the calculation of the Borrower’s monthly expenses. Delinquent federal debt or tax liens may also be paid off prior to obtaining a HECM using the Borrower’s own funds or paid off as a Mandatory Obligation at closing. (b) Verification Mortgagees must check public records and credit information to verify that the Borrower is not presently delinquent on any Federal Tax Debt and does not have a tax lien placed against their Property for a tax debt owed to the federal government. (c) Required Documentation The Mortgagee must include documentation from the IRS evidencing the repayment agreement and verification of payments made, if applicable. The Mortgagee must include documentation from the IRS evidencing the payoff of the tax lien, if applicable. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 573 Last Revised: 11/26/2025 (11) Borrower Ineligibility Due to Delinquent Federal Non-Tax Debt (a) Definition Judgment refers to any debt or monetary liability of the Borrower created by a court or other adjudicating body. (b) Standard Mortgagees are prohibited from processing an application for an FHA-insured HECM for Borrowers with delinquent federal non-tax debt, including deficiency Judgments and other debt associated with past FHA-insured Mortgages. Mortgagees must suspend processing of the application until the debt has been resolved with the creditor agency. Mortgagees are required to determine whether the Borrowers have delinquent federal non-tax debt. Mortgagees may obtain information on delinquent Federal Debts from public records, credit reports or equivalent, and must check all Borrowers against the Credit Alert Verification Reporting System (CAIVRS). (c) Verification If a delinquent Federal Debt is reflected in a public record, credit report or equivalent, or CAIVRS or an Equivalent System, the Mortgagee must verify the validity and delinquency status of the debt by contacting the creditor agency to whom the debt is owed. If the debt was identified through CAIVRS, the Mortgagee must contact the creditor agency using the contact phone number and debt reference number reflected in the Borrower’s CAIVRS report. If the creditor agency confirms that the debt is valid and in delinquent status as defined by the Debt Collection Improvement Act, then the Borrower is ineligible for an FHA-insured HECM until the Borrower resolves the debt with the creditor agency. The Mortgagee may not deny a HECM solely based on the CAIVRS information that has not been verified by the Mortgagee. If resolved either by determining that the information in CAIVRS is no longer valid or by resolving the delinquent status as stated above, the Mortgagee may continue to process the HECM application. (d) Resolution For a Borrower with verified delinquent Federal Debt to become eligible, the Borrower must resolve their federal non-tax debt in accordance with the Debt Collection Improvement Act. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 574 Last Revised: 11/26/2025 The creditor agency that is owed the debt can verify that the debt has been resolved in accordance with the Debt Collection Improvement Act. (e) Required Documentation The Mortgagee must include documentation from the creditor agency to support the verification and resolution of the debt. For debt reported through CAIVRS, the Mortgagee may obtain evidence of resolution by obtaining a clear CAIVRS report. (12) Valid First and Second Liens The Mortgagee must ensure that the mortgaged Property will be free and clear of all liens or that any permissible liens are subordinated to the first HECM lien and any second lien held by the Commissioner. The Mortgagee must ensure there are no restrictions on conveyance, unless such restrictions are permitted by FHA regulations. An existing lien of record, unless prohibited, may be subordinated to the first HECM lien and any second lien held by the Commissioner if the following two conditions are satisfied: • the subordinate lien does not intervene between the first and second HECM liens; and • the subordinate lien must not arise or be made in connection with obtaining HECM financing. FHA regulations at 24 CFR 206.32 provide that there must not be any outstanding or unpaid obligations incurred by the Borrower in connection with the HECM transaction. (a) Tax Liens Tax liens may remain unpaid if the Borrower has entered into a valid repayment agreement with the lien holder to make regular payments on the debt and the Borrower has made timely scheduled payments for at least three consecutive months. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments. Except for federal tax liens, the lien holder must subordinate the tax lien to the FHA- insured HECM. For more on federal tax liens, see Delinquent Federal Tax Debt. (b) Court Judgment Liens Liens against the Property resulting from outstanding court Judgments must be paid in full prior to or at closing. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 575 Last Revised: 11/26/2025 (c) Secondary Financing A pre-existing Mortgage lien securing secondary financing that was provided by a Governmental Entity (federal, state, or local) or by an organization acting on behalf of a Governmental Entity must be paid in full prior to closing. If the lien is in connection with a real estate tax deferral program, then see Real Estate Tax Deferral Program. (d) Real Estate Tax Deferral Program (i) Definitions Real Estate Tax Deferral Program refers to a taxing authority deferring the payment of property taxes, i.e., liability for taxes remains, but payment is deferred until a certain point in the future. (ii) Standard The Mortgagee must ensure the Borrower is not a participant in a real estate tax deferral program unless such liens securing payment of deferred taxes are subordinate to the first and second HECM liens, and: • the real estate tax deferral period will be in place until the death of the Borrower or the sale of the Property, whichever occurs first; and • a lien superior to the first and second HECM liens will not be created upon the termination of the real estate tax deferral period resulting in any obligation for the deferred tax obligation to be repaid at the death or move-out of the Borrower, or any other maturity event. (iii)Required Documentation The Mortgagee must obtain evidence documenting the deferred taxes and lien priority. (B) General Non-Borrowing Spouse Requirements (1) Definitions An Ineligible Non-Borrowing Spouse refers to an NBS who does not meet all Qualifying Attributes for a Deferral Period. Qualifying Attributes refer to the criteria an NBS must meet to be eligible for the Deferral Period. An Eligible NBS must: • have been the spouse of a HECM Borrower at the time of closing and have remained the spouse of such HECM Borrower for the duration of the HECM Borrower’s lifetime; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 576 Last Revised: 11/26/2025 • have been properly disclosed to the Mortgagee at origination and specifically named as an NBS in the HECM documents; and • have occupied, and continue to occupy, the Property securing the HECM as the Principal Residence of the NBS. A Deferral Period refers to the period of time following the death of the last surviving Borrower for a HECM with an FHA case number assigned on or after August 4, 2014, during which the Due and Payable status of a HECM is deferred for an Eligible NBS or Eligible Surviving NBS provided that the Qualifying Attributes and all other FHA requirements continue to be satisfied. (2) Marital Status (a) Standard At initial application, the Mortgagee must: • verify the name and age of any NBS on the Borrower’s application; and • determine if the spouse is an Eligible or Ineligible NBS. An Eligible NBS may not elect to be ineligible for the Deferral Period. An Eligible NBS becomes an Ineligible NBS and ineligible for the Deferral Period when any of the Qualifying Attributes cease to be met. (b) Required Documentation The Mortgagee must obtain the following: • a marriage certificate, legal opinion certifying the validity of the marriage, or other evidence sufficient to establish the legal validity of the marriage; • the NBS’s SSN; and • either the Ineligible NBS or Eligible NBS certification. (3) Social Security Number (a) Standard Each NBS must have a valid SSN. (b) Required Documentation The Mortgagee must: • validate and document an SSN for each NBS by: • entering the NBS’s name, date of birth, and SSN in the Borrower/address validation screen through FHAC; and II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 577 Last Revised: 11/26/2025 • examining the Eligible NBS’s original pay stubs, IRS Form W-2s, valid Tax Returns obtained directly from the IRS, or other document relied upon to process the HECM; and • resolve any inconsistencies or multiple SSNs for individual Eligible NBS that are revealed during HECM processing using a service provider to verify the SSN with the SSA. Exception Individuals employed by the World Bank, a foreign embassy, or equivalent employer identified by HUD are not required to provide an SSN. (4) Non-Borrowing Spouse Age Limits The NBS does not have to be 62 years old for an eligible Borrower to obtain a HECM. (5) Principal Residence The Mortgagee must determine whether the Property serves as the Principal Residence of each NBS. (C) Excluded Parties The Mortgagee must establish that the Borrower and Eligible NBS are not Excluded Parties and document the determination as required below. (1) Borrower and Eligible NBS (a) Standard A Borrower and Eligible NBS are not eligible to participate in FHA-insured mortgage transactions if they are suspended, debarred, or otherwise excluded from participating in HUD programs. (b) Required Documentation The Mortgagee must check the HUD LDP List to confirm the Borrower’s and Eligible NBS’ eligibility to participate in an FHA-insured mortgage transaction. The Mortgagee must check SAM and follow appropriate procedures defined by that system to confirm eligibility for participation. The Mortgagee must print the results of the check of the HUD LDP and SAM to confirm eligibility of participation in the HECM program. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 578 Last Revised: 11/26/2025 (2) Other Parties to the Transaction (a) Standard A HECM is not eligible for FHA insurance if anyone participating in the HECM transaction is listed on HUD’s LDP List or in SAM as being excluded from participation in HUD transactions. This may include but is not limited to: • seller (except where selling the Principal Residence) • listing and selling real estate agent • loan originator • loan processor • underwriter • Appraiser • Closing Agent • title company (b) Required Documentation The Mortgagee must check the HUD LDP List and SAM and follow appropriate procedures defined by that system to confirm eligibility for all participants involved in the transaction. (D) Limitation on Number of HECMs (1) Standard A Borrower with an existing HECM is eligible to obtain a new HECM if the Borrower provides legal documentation evidencing release of the Borrower’s financial obligation to satisfy the existing HECM. A Borrower with an existing HECM is eligible to use the HECM for Purchase program to obtain a new Principal Residence if they pay off the existing HECM before the HECM for Purchase transaction is insured. (2) Required Documentation The Borrower must provide a copy of: • a final divorce decree or court order evidencing the vacating Borrower is released from their financial obligation to satisfy the indebtedness of the existing HECM and recorded quit claim deed or other equivalent; or • evidence that the existing HECM outstanding balance is repaid in full, such as: • a copy of the fully executed Closing Disclosure, HUD-1 Settlement Statement or similar legal document; • a payoff statement and copy of the canceled check or its equivalent; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 579 Last Revised: 11/26/2025 • a credit report with a zero balance; or • a copy of the canceled check or its equivalent and a copy of the lien release. iii. Property Eligibility and Acceptability Criteria The Property must meet FHA’s definition of a HECM Property. In order to obtain FHA-insured financing, the Property must meet the eligibility criteria in this section. (A) General Property Eligibility (1) Definitions HECM Property refers to a Property that is either Existing Construction or New Construction which will serve as collateral for the HECM. Existing Construction refers to a Property that has been 100 percent complete for over one year or has been completed for less than one year and was previously occupied. New Construction refers to Proposed Construction, Properties Under Construction, and Properties Existing Less than One Year as defined below: • Proposed Construction refers to a Property where no concrete or permanent material has been placed. Digging of footing is not considered permanent. • Under Construction refers to the period from the first placement of permanent material to 100 percent completion with no Certificate of Occupancy (CO) or equivalent. • Existing Less than One Year refers to a Property that is 100 percent complete and has been completed less than one year from the date of issuance of the CO or equivalent. The Property must have never been occupied. (2) Location of HECM Property The HECM Property must be located within a state, District of Columbia, Puerto Rico, Guam, the Virgin Islands, the Commonwealth of the Northern Mariana Islands, or American Samoa. (3) Hazard Insurance The Borrower must insure all improvements on the HECM Property, whether in existence at the time of origination or subsequently erected, against any hazards, casualties, and contingencies, including fire and flood, for which the Mortgagee requires insurance. Hazard Insurance must be maintained in the amount and for II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 580 Last Revised: 11/26/2025 the period of time that is necessary to protect the Mortgagee’s investment. Refer to the Condominium product sheet of this section of Handbook 4000.1 for additional insurance requirements. (4) Special Flood Hazard Areas The Mortgagee must determine if a Property is located in a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA). The Mortgagee must obtain flood zone determination services, independent of any assessment made by the Appraiser, to cover the Life of the Loan Flood Certification. A Property is not eligible for FHA insurance if: • a residential building and related improvements to the Property are located within any SFHA Zone beginning with the letter A, an SFHA, or any Zone beginning with the letter V, a Coastal High Hazard Area, and insurance under the National Flood Insurance Program (NFIP) is not available in the community; or • the improvements are, or are proposed to be, located within the Coastal Barrier Resources System (CBRS). To be eligible for FHA insurance, a Property located in an SFHA must be in a community that participates in the NFIP and has NFIP available, regardless of whether the Borrower obtains NFIP coverage. (a) Flood Insurance (i) Definitions Flood Insurance refers to insurance provided by an NFIP or a Private Flood Insurance (PFI) policy that covers physical damage by floods. An NFIP policy refers to insurance managed by the Federal Emergency Management Agency (FEMA) that covers physical damage by floods. A PFI policy refers to insurance provided by a private insurance carrier that covers physical damage by floods. (ii) Standard Eligible Properties If any portion of the dwelling and related Structures or equipment essential to the Property Value is located in an SFHA and NFIP insurance is available in that community, the Mortgagee must ensure the Borrower obtains and maintains Flood Insurance. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 581 Last Revised: 11/26/2025 Required Flood Insurance Coverage For Properties located within an SFHA, Flood Insurance must be maintained for the life of the HECM in an amount at least equal to the lowest of the following: • 100 percent replacement cost of the insurable value of the improvements, which consists of the development or project cost less estimated land cost; • the maximum amount of NFIP insurance available with respect to the particular type of Property; or • the outstanding principal balance of the Mortgage. Where the outstanding principal balance of the Mortgage is used to determine the amount of Flood Insurance coverage, Flood insurance must be adjusted each renewal cycle to cover an amount at least equal to the outstanding principal balance at the end of the insurance coverage period. Requirements for PFI If the Borrower purchases a PFI policy in lieu of an NFIP policy, the Mortgagee must ensure the PFI policy meets the following requirements: • is issued by an insurance company that is licensed, admitted, or otherwise approved to engage in the business of insurance in the state or jurisdiction in which the Property to be insured is located, by the insurance regulator of the state or jurisdiction; or, in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property, is recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the state or jurisdiction where the Property to be insured is located; • provides Flood Insurance coverage that is at least as broad as the coverage provided under a standard Flood Insurance policy under the NFIP for the particular type of Property, including when considering exclusions and conditions offered by the insurer; • includes deductibles that are no higher than the specified maximum, and includes similar non-applicability provisions, as under a standard Flood Insurance policy under the NFIP; • includes a requirement for the insurer to provide written notice 45 Days before cancellation or nonrenewal of Flood Insurance coverage to the Borrower and the Mortgagee. In cases where the Mortgagee has assigned the loan to HUD, the insurer must provide notice to HUD and, where applicable, to the Borrower; • includes information about the availability of Flood Insurance coverage under the NFIP; • includes a mortgage interest clause similar to the clause contained in a standard Flood Insurance policy under the NFIP; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 582 Last Revised: 11/26/2025 • includes a provision requiring the Borrower to file suit no later than one year after the date of a written denial for all or part of a claim under the policy; and • contains cancellation provisions that are as restrictive as the provisions contained in a standard Flood Insurance policy under the NFIP. (iii) Private Flood Insurance Policy Compliance Aid Definition The Private Flood Insurance (PFI) Policy Compliance Aid is the statement: “This policy meets the definition of private flood insurance contained in 24 CFR 203.16a(e) for FHA-insured mortgages.” Standard The PFI Policy Compliance Aid may be made by the insurance provider, attesting that a PFI policy meets the requirements of Flood Insurance. The Mortgagee may rely on the PFI Policy Compliance Aid to determine whether a PFI policy meets the Flood Insurance requirements. In the absence of the PFI Policy Compliance Aid within the policy, a Mortgagee may review the policy to determine if it meets FHA requirements or rely on the insurance agent or carrier to separately provide the PFI Policy Compliance Aid language. (iv) Required Documentation For Properties located within an SFHA, the Mortgagee must include in the case binder: • a Life of Loan Flood Certification for all Properties; • if applicable, include a: • FEMA Letter of Map Amendment (LOMA); • FEMA Letter of Map Revision (LOMR); or • FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY- 22-152); and • a copy of the certificate of Flood Insurance or complete copy of the Flood Insurance policy, if required. (v) Required Reporting The Mortgage must report the required Flood Insurance information in the insurance application screen in FHAC. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 583 Last Revised: 11/26/2025 (b) Eligibility for New Construction in SFHAs If any portion of the dwelling and related Structures, or equipment essential to the Property Value is located in an SFHA, the Property is not eligible for FHA mortgage insurance, unless the Mortgagee: • obtains a FEMA-issued final LOMA or LOMR that removes the Property from the SFHA; or • obtains a FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY- 22-152). The Elevation Certificate must document that the lowest floor of the residential building, including the basement, and all related Structures or equipment essential to the Property Value are built above the 100-year flood elevation in compliance with the NFIP criteria; and • ensures the Borrower obtains Flood Insurance. See the HECM for Purchase product sheet for additional requirements. (c) Eligibility for Existing Construction in SFHAs When any portion of the residential improvements is determined to be located within an SFHA, Flood Insurance must be obtained. (d) Eligibility for Condominiums in SFHAs The Mortgagee must ensure the Condominium Association obtains Flood Insurance on buildings located within the SFHA. The Flood Insurance coverage must protect the interest of the Borrowers who hold title to an individual unit, as well as the common areas of the Condominium Project. See Flood Insurance (Existing Construction). (e) Eligibility for Manufactured Housing in SFHAs The finished grade level beneath the Manufactured Home must be at or above the 100-year return frequency flood elevation. If any portion of the dwelling and related Structures or equipment essential to the Property Value for both new and existing Manufactured Homes is located in an SFHA, the Property is not eligible for FHA mortgage insurance, unless the Mortgagee: • obtains a FEMA-issued LOMA or LOMR that removes the Property from the SFHA; or • obtains a FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY- 22-152) showing that the finished grade beneath the Manufactured Home is at or above the 100-year return frequency flood elevation; and • ensures the Borrower obtains Flood Insurance. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 584 Last Revised: 11/26/2025 (f) Restrictions on Property Locations within Coastal Barrier Resources System In accordance with the Coastal Barrier Resources Act, a Property is not eligible for FHA mortgage insurance if the improvements are located within the Coastal Barrier Resources System. (5) Mixed Use of Property Mixed Use refers to a Property suitable for a combination of uses including any of the following: commercial, residential, retail, office, or parking space. Mixed Use one- to four-unit Single Family Properties are eligible for FHA insurance, provided: • a minimum of 51 percent of the entire building square footage is for residential use; and • the commercial use will not affect the health and safety of the occupants of the residential Property. (6) Homeowners’ and Condominium Associations For Properties that are located within a Homeowners’ Association (HOA) or Condominium Association, the Mortgagee must conduct a review of the recorded Declaration and/or recorded Covenants, Conditions, and Restrictions (CC&R) which are in place for the association. When conducting the review, the Mortgagee must determine whether the recorded Declaration and/or CC&Rs require prior approval by the association of any non-purchase money mortgage that will encumber the Property. In those situations where such a requirement exists, the Mortgagee must obtain the approval of the association in writing prior to origination of the HECM. Documentation concerning this approval must be maintained by the Mortgagee and made available to HUD upon request. (7) Property Assessed Clean Energy (a) Definition Property Assessed Clean Energy (PACE) refers to an alternative means of financing energy and other PACE-allowed improvements to residential properties using financing provided by private enterprises in conjunction with state and local governments. Generally, the repayment of the PACE obligation is collected in the same manner as a special assessment tax; it is collected by the local government rather than paid directly by the Borrower to the party providing the PACE financing. Generally, the PACE obligation is also secured in the same manner as a special assessment against the property. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 585 Last Revised: 11/26/2025 (b) Standard Properties which will remain encumbered with a PACE obligation are not eligible for an FHA-insured HECM. To be eligible for FHA insurance, the PACE obligation must be paid off in full prior to or at closing. The Borrower may use HECM proceeds to satisfy the PACE obligation. For HECM for Purchase transactions, see the Property Assessed Clean Energy section of the product sheet. (B) Property Types FHA’s programs differ from one another primarily in terms of what types of Properties and financing are eligible. Except as otherwise stated in this Handbook 4000.1, HECMs are limited to one- to four-unit Single Family Properties where the Borrower occupies one unit as their Principal Residence. FHA insures HECM financing on Real Property secured by: • detached or semi-detached dwellings • Manufactured Housing • townhouses or row houses • Condominium Units and Site Condominiums FHA will not insure HECMs secured by: • commercial enterprises • cooperative units • boarding houses • hotels, motels, and condotels • tourist houses • private clubs • bed and breakfast establishments • other transient housing • Vacation Homes • fraternity and sorority houses (1) One-Unit A one-unit Property is a Single Family residential Property with a single Dwelling Unit, or with a single Dwelling Unit and a single ADU. (2) Two-Unit (a) Definition A two-unit Property is a Single Family residential Property with two individual dwellings. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 586 Last Revised: 11/26/2025 (b) Standard The Mortgagee must obtain a completed form HUD-92561. (3) Three- to Four-Unit A three- to four-unit Property is either: • a Single Family residential Property with three to four individual Dwelling Units; or • a Single Family residential Property with two individual Dwelling Units and one ADU or three individual Dwelling Units and one ADU. The Mortgagee must obtain a completed form HUD-92561. (4) Accessory Dwelling Unit (a) Definition An Accessory Dwelling Unit (ADU) refers to a single habitable living unit with means of separate ingress and egress that meets the minimum requirements for a living unit. An ADU is a private space that is subordinate in size and within, or detached from a primary one-unit Single Family dwelling, which together constitute a single interest in real estate. (b) Standard A Single Family residential one-unit Property with a single ADU remains a one-unit Property. For any Single Family residential Property with two or more units, a separate additional Dwelling Unit must be considered as an additional unit. (5) Condominium Unit (a) Definitions A Condominium Unit refers to real estate consisting of a one-family Dwelling Unit in a Condominium Project. Condominium Project refers to a project in which one-family Dwelling Units are attached, semi-detached, detached, or Manufactured Home units, and in which owners hold an undivided interest in Common Elements. (b) Standard A Condominium Unit must be either located within an FHA-approved Condominium Project, meet FHA’s definition of a Site Condominium, or have II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 587 Last Revised: 11/26/2025 completed the FHA Single-Unit Approval process before a Mortgage can be insured. (6) Site Condominiums (a) Definition A Site Condominium refers to: • a Condominium Project that consists entirely of Single Family detached dwellings that have no shared garages, or any other attached buildings; or • a Condominium Project that: • consists of Single Family detached or horizontally attached (townhouse-style) dwellings where the Unit consists of the dwelling and land; • does not contain any Manufactured Housing Units; and • is encumbered by a declaration of condominium covenants or a condominium form of ownership. (b) Standard Manufactured Housing condominium units may not be processed as Site Condominiums. The Unit owner must be responsible for all required insurance and maintenance costs associated with the Unit dwelling, excluding landscaping, of the Site Condominium. Site Condominiums do not require Condominium Project Approval or Single- Unit Approval. (7) Manufactured Housing (a) Definition Manufactured Housing is a Structure that is transportable in one or more sections. It may be part of a Condominium Project, provided the project meets applicable FHA requirements. (b) Standard To be eligible for FHA mortgage insurance as a Single Family Title II HECM, all Manufactured Housing must: • be designed as a one-family dwelling; • have a floor area of not less than 400 square feet; • have the HUD Certification Label affixed or have obtained a letter of label verification issued on behalf of HUD, evidencing the house was II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 588 Last Revised: 11/26/2025 constructed on or after June 15, 1976, in compliance with the Federal Manufactured Home Construction and Safety Standards; • be classified as real estate (but need not be treated as real estate for purposes of state taxation); • be built and remain on a permanent chassis; • be designed to be used as a dwelling with a permanent foundation built in accordance with the Permanent Foundations Guide for Manufactured Housing (PFGMH); and • have been directly transported from the manufacturer or the dealership to the site. (c) Required Documentation (i) HUD Certification Label If the appraisal indicates the HUD Certification Label is missing from the Manufactured Housing unit, the Mortgagee must obtain label verification from the Institute for Building Technology and Safety (IBTS). (ii) PFGMH Certification The Mortgagee must obtain a certification by an engineer or architect, who is licensed/registered in the state where the Manufactured Home is located, attesting to compliance with the PFGMH. The Mortgagee may obtain a copy of the foundation certification from a previous FHA-insured Mortgage, showing that the foundation met the guidelines published in the PFGMH that were in effect at the time of certification, provided there are no alterations and/or observable damage to the foundation since the date of the original certification. If the Appraiser notes additions or alterations to the Manufactured Housing unit, the Mortgagee must ensure the addition was addressed in the foundation certification. If the additions or alterations were not addressed in the foundation certification, the Mortgagee must obtain: • an inspection by the state administrative agency that inspects Manufactured Housing for compliance; or • certification of the structural integrity from a licensed structural engineer if the state does not employ inspectors. (C) Property Valuation The Mortgagee is responsible for obtaining an appraisal to verify the value of the Property and the Property’s compliance with HUD’s MPR or MPS. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 589 Last Revised: 11/26/2025 (1) Integrity of Valuation Process: Communications with Mortgagees The Mortgagee must ensure the integrity of the valuation process by ensuring the valuation process is free from conflicts of interest and the appearance of conflicts of interest. (a) Standard The Mortgagee must prevent its staff, or any person who is compensated on a commission basis upon the successful completion of a HECM, or who reports, ultimately, to any officer of the Mortgagee not independent of the HECM production staff and process, from having substantive communications with an Appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment. Normal communications necessary to processing of a case is permissible but cannot attempt to influence the Appraiser. The underwriter who has responsibility for the quality of the appraisal report is allowed to request clarifications and discuss with the Appraiser components of the appraisal that influence its quality. (b) Exception for Smaller Mortgagees When absolute lines of independence cannot be achieved because of the Mortgagee’s small size and limited staff, the Mortgagee must clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its HECM production process. (2) Communications with Third Parties The underwriter may request a clarification or reconsideration of value from the Appraiser, following the requirements in Reconsideration of Value. The Mortgagee may not discuss the contents of an appraisal with anyone other than the Borrower. (3) Verifying HUD’s Minimum Property Standards/Minimum Property Requirements As the onsite representative for the Mortgagee, the Appraiser provides preliminary verification that a Property meets the Property Acceptability Criteria, which include HUD’s MPR or MPS. When examination of a Property reveals noncompliance with the Property Acceptability Criteria, the Appraiser must note all repairs necessary to make the Property comply with HUD’s Property Acceptability Criteria, together with the estimated cost to cure. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 2. Origination/Processing Handbook 4000.1 590 Last Revised: 11/26/2025 iv. Legal Restrictions on Conveyance (Free Assumability) The Mortgagee must determine that any legal restrictions on conveyance conform with the requirements in 24 CFR § 206.45(e). In accordance with 24 CFR § 203.41(d)(1)(ii), FHA considers a reasonable share of appreciation to be at least 50 percent. HUD does not object to affordable housing programs whereby the homeowner’s share of appreciation is on a sliding scale beginning at zero, provided that within two years the homeowner would be permitted to retain 50 percent of the appreciation. If the program sets a maximum sales price restriction, the Borrower must be permitted to retain 100 percent of the appreciation. A Property that contains leased equipment, or operates with a leased energy system or Power Purchase Agreement (PPA), may be eligible for FHA-insured financing but only when such agreements are free of restrictions that prevent the Borrower from freely transferring the Property. Such agreements are acceptable, provided they do not cause a conveyance (ownership transfer) of the insured Property by the Borrower to: • be void, or voidable by a third party; • be the basis of contractual liability of the Borrower (including rights of first refusal, preemptive rights or options related to a Borrower’s efforts to convey); • terminate or be subject to termination all or part of the interest held by the Borrower; • be subject to the consent of a third party; • be subject to limits on the amount of sales proceeds a Borrower can retain (e.g., due to a lien, “due on sale” clause, etc.); • be grounds for accelerating the insured HECM; or • be grounds for increasing the interest rate of the insured HECM. Any restrictions resulting from provisions of the lease or PPA do not conflict with FHA regulations unless they include provisions encumbering the Real Property or restricting the transfer of the Real Property. Legal restrictions on conveyance of Real Property (i.e., the house) that could require the consent of a third party (e.g., energy provider, system owner, etc.), include but are not limited to, credit approval of a new purchaser before the seller can convey the Real Property, unless such provisions may be terminated at the option of, and with no cost to, the owner. If an agreement for an energy system lease or PPA could cause restriction upon transfer of the house, the Property is subject to impermissible legal restrictions and is generally ineligible for FHA insurance. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages 3. Allowable Mortgage Parameters Handbook 4000.1 591 Last Revised: 11/26/2025 3. Allowable Mortgage Parameters The Mortgagee must determine the Borrower’s creditworthiness, financial capacity, and available capital to support the HECM. The Mortgagee must also examine the Property to ensure it provides sufficient collateral for the HECM. For each HECM the FHA insures, the Mortgagee must fully comply with the following underwriting procedures.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part II — b. General HECM Insurance Eligibility (05/25/2025) · source URL · snapshot 8c03836f77f317e1