Property taxes and insurance with a reverse mortgage

The charges a HECM leaves with you

The regulation splits property charges in two groups. The first, ground rents, condominium fees, planned unit development fees and homeowners' association fees, the borrower pays directly, on or before the due date, in every case. The second, property taxes including special assessments, hazard insurance premiums and flood insurance premiums where required, is also the borrower's obligation, but it can be paid in one of three ways: by the borrower, through a life expectancy set-aside, or, on an adjustable loan, by the lender out of monthly payments or the line of credit.

The mortgage documents add more duties. You must insure the home against the hazards the lender requires, keep it in good repair, and not allow other liens on it unless they rank behind the HECM. HUD's Inspector General summed up the bargain in its 2026 audit: borrowers may stay in their homes indefinitely as long as property taxes and homeowner's insurance are kept current.

The financial assessment before closing

Since 2015 every HECM goes through a financial assessment, which the Handbook defines as the underwriter's evaluation of the borrower's willingness and capacity to meet financial obligations on time and of whether the HECM is a sustainable solution. Three tests feed it.

Credit history: all housing and installment payments made on time for the previous 12 months, no more than two 30-day late payments in the previous 24, and no major derogatory event on revolving accounts in the last 12. Property charge history: at application, all property taxes and association fees current, and no delinquency in the previous 24 months; insurance in force continuously for the previous 12. Residual income: what is left each month after expenses, which must at least equal the amount HUD sets for the household size and region.

Every member of the household counts toward its size, including a non-borrowing spouse, unless the conditions for excluding them are met. A shortfall can be offset by compensating factors such as a 24-month record of paying your own property charges without penalty, or assets equal to the projected charges over your life expectancy.

Three outcomes, priced on one home

The assessment ends in one of three results. If credit and property charge histories pass and residual income meets the standard, no set-aside is required, and you choose how to pay. If a history fails and no extenuating circumstance is documented, the lender must at least require a fully funded set-aside and pays the taxes and insurance itself. If the histories pass but residual income falls short and no compensating factor applies, the minimum is a partially funded set-aside, paid to you twice a year to top up your own payments.

The set-aside does not add to the balance until money is paid out of it, but it is no longer available to draw. The set-aside page details HUD's formula and the life table it uses; a partial amount above 75 % of the full one turns into a full set-aside.

Paying the bills yourself or through the loan

When no set-aside is required, you elect a method at closing. On an adjustable HECM you can pay the bills yourself, choose a fully funded set-aside, or have the lender pay taxes and insurance by withholding from monthly payments or charging the line of credit. On a fixed-rate HECM only the first two are available. An election to have the lender pay cannot be cancelled, and if the loan's funds run short, the bills fall back on you even so. Payments the lender makes join the balance when they are made and accrue interest from then on.

When a tax or insurance bill goes unpaid

Section 206.205(c)(4) sets the sequence. With a partial set-aside that still holds money, the lender stops the semiannual payments to you and pays the overdue charge from the set-aside. With a set-aside that is empty on an adjustable loan, partial or full, the lender pays the charge in full from any principal limit still available and charges it to your account. In each case it must write to you within 30 days of learning of the unpaid bill, and you have 30 days to explain what happened.

When no principal limit is left, or on a fixed-rate loan whose set-aside is exhausted, and the borrower still does not pay, the mortgage can become due and payable. Under 24 CFR 206.27, failing to pay property charges as section 206.205 requires is one of the events that make the full balance due, upon HUD's approval. The loan remains non-recourse: the debt is collected only from the home, never from your other assets. The heirs page explains how a due loan is settled, and a HUD-approved housing counselor is the contact the regulation itself points to.