Terms and Conditions for HECM Loans
One of the most important steps that a borrower can do when considering an application for a Home Equity Conversion Mortgage (HECM — also known as a “Reverse Mortgage“) is to shop around for the lender who will offer the best terms and conditions for the loan.
HECM loans are insured by the Federal Housing Administration (FHA) but the FHA does not require that all lenders set identical criteria for credit scores, interest rates or even the closing costs. These variables differ among lenders. The FHA rules state that lenders can set their own criteria for credit scores and other payments as long as these requirements are applied equally to all loan applicants, are considered “reasonable and customary” in the industry and do not violate fair housing laws.
For instance, a lender can charge a slightly higher or slightly lower interest rate based on an applicant’s financial history and credit score. The FHA views this as both reasonable and customary. As long as the lender applies identical criteria to all applicants there would be no question of a violation of the Fair Housing Act.
In addition closing costs vary from lender to lender. The FHA recognizes this and does not intervene unless the lender violates any of the previously-mentioned clauses.
These are, however, areas that give borrowers room to negotiate which allows them to receive the best rates from a HECM lender. Before an applicant begins the process of applying for a Reverse Mortgage he should obtain a copy of his Fair Isaac Corporation (FICO) score. The AnnualCreditReport, operated by the three credit reporting bureaus (Experian, Equifax and TransUnion) provides an individual with one free copy per year of their personal credit report. A good FICO score may improve a borrower’s eligibility for better Reverse Mortgage loan terms and conditions.
The FHA or a Reverse Mortgage Counselor can advise applicants with low credit scores on ways that they can raise their credit score before applying for the HECM loan. These bodies can also provide advice regarding how to present other assets (such as cash reserves) in a way that will improve their chances of obtaining better terms from a Reverse Mortgage lender.
In short, it is the borrower’s responsibility to research available lending institution options. This research can result in information that will allow the individual to receive the best terms and conditions for a HECM loan. The HECM loan has federally-mandated requirements, guidelines and minimums but the FHA does not require HECM lenders to offer the loan to at terms which fall outside market norms.

