HECM for Purchase

How Much Cash Does the Buyer Need to Bring?

The buyer's main question is often how much cash it takes. The purchase price is paid from two sources: the buyer's own money and the HECM loan.

HUD lists what sets the loan amount. It includes the "age of the youngest borrower or eligible non-borrowing spouse" and the "lesser of appraised value or the HECM FHA mortgage limit or the sales price." The FHA limit is called the maximum claim amount, meaning the highest home value the loan formula will use. HUD publishes the current figure. The CFPB notes that "the older a borrower is, the more money he or she can borrow." The amount a reverse mortgage may provide also depends on interest rates and costs.

The down payment is the gap between the price plus closing costs and the HECM proceeds. HUD says a buyer can use a HECM to purchase "if you are able to use cash on hand to pay the difference." HUD's notice FHA INFO 2024-22 says this "often significant minimum required investment" makes the loan hard to get, because a new home starts with limited equity. For HECM case numbers assigned on or after April 29, 2024, the same notice permits contributions to closing costs from the seller, real estate agent, builder or developer. It does not permit them from the lender or other loan originators.

As a hypothetical illustration only, picture a buyer whose HECM proceeds cover part of the price. Their own money covers the rest, often from selling a prior home. The real split depends on that buyer's age, rates and the appraisal.

The down payment is the piece that surprises many buyers, and knowing it early shapes every other decision.

Who Qualifies: Borrower and Property Requirements

Each condition below comes from federal rules. A lender decides whether a particular buyer meets them.

Age. The statute defines an "elderly homeowner" as one "who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe" (12 U.S.C. § 1715z-20(b)(1)). HUD's regulation is stricter on timing: "The youngest borrower shall be 62 years of age or older at the time of loan closing" (24 C.F.R. § 206.33). The age requirements also cover spouses.

Spouses under 62. HUD's lender guide says a non-borrowing spouse must be 18 or older. An Eligible Non-Borrowing Spouse is a spouse who is not on the loan but meets HUD's conditions. That spouse's age affects the loan amount, and the spouse may get a deferral described later on this page.

Principal residence. The home must be each borrower's main home. For a purchase, each borrower, and any Eligible Non-Borrowing Spouse, "must occupy the property within 60 days from the date of closing" (24 C.F.R. § 206.39(b)).

Property. The home must be a 1- to 4-unit dwelling with one unit occupied by the borrower. HUD's lender guide adds that it "must meet FHA property standards and flood requirements." HUD's handbook holds the full rules, and the property requirements explain them further.

Counseling. Counseling with a HUD-approved counselor is required, described in the next section.

Federal debt and ongoing costs. According to the CFPB, a borrower "cannot owe any federal debt," though reverse mortgage money may pay it off. A borrower must also have enough money, or agree to set aside loan funds at closing, for taxes, insurance, maintenance and repairs.

The HECM for Purchase Process, Step by Step

Seeing the steps in order can make the process feel more manageable.

1. Counseling. The FTC says a HECM applicant "must meet with a counselor from an independent government-approved housing counseling agency first." The statute requires a counselor not paid by or tied to anyone who makes, funds or services the loan, or who sells annuities, investments or insurance (12 U.S.C. § 1715z-20(d)(2)(B)). Counseling must cover other options, costs, and possible effects on taxes, public benefits and heirs. HUD's page says to search the HECM Counselor Roster or call (800) 569-4287.

2. Application. The buyer applies with an FHA-approved lender. The lender checks the federal-debt and property-charge conditions described above.

3. Appraisal. The home is appraised. The lower of the appraised value, the sales price or HUD's limit feeds the loan amount.

4. Disclosures and approval. Before closing, the lender must give a statement of the loan's projected total cost. At least 10 days before closing, it must give a statement explaining the borrower's limited liability, rights and obligations (12 U.S.C. § 1715z-20(e)). The lender then decides whether to approve the loan, and HUD insures it.

5. Closing and move-in. The buyer brings the down payment, the HECM pays the rest, and title passes. No separate mortgage is involved. The buyer then moves in within the 60-day window.

Counseling and the appraisal add steps that an all-cash purchase does not have.

Costs and Fees Associated with a HECM for Purchase

Costs matter because most are added to the balance and grow with it. The regulations set ceilings. They are not the amounts a borrower is charged.

Mortgage insurance premium (MIP). This is the FHA's insurance charge, and it supports the protections described later on this page. Under 24 C.F.R. § 206.105, the initial MIP is capped at a share of the maximum claim amount. A monthly MIP accrues daily at a rate the rule also caps. HUD may adjust either premium "through notice." The monthly MIP may be added to the balance (24 C.F.R. § 206.27(b)(7)).

Origination fee. This is the lender's charge for making the loan. Federal rules limit it. The lender discloses the actual amount.

Third-party closing costs. These include the appraisal, title and settlement, and recording fees. Amounts vary by transaction.

Servicing fee. Some loans include a servicing fee set aside from the loan funds, which the MIP rule refers to as a "Servicing Fee Set Aside, if applicable."

The statute requires full disclosure of every cost. The disclosure must state which charges are required for the loan and which are not (12 U.S.C. § 1715z-20(d)(2)(C)). A counselor and the lender's cost statement can show how these charges add up over time.

Because most costs are added to the balance and grow over time, seeing them laid out clearly matters.

What the Borrower Must Keep Doing After Moving In

Moving in is not the end of the buyer's duties. These obligations last for as long as the loan is in place.

Live there. The home must stay the borrower's principal residence, meaning the place they live as their main home. The CFPB describes this as living there "the majority of the year."

Pay the property charges. Property taxes and insurance are the borrower's to pay. Under 24 C.F.R. § 206.27(b)(6), "the borrower must provide for the payment of property charges." HUD's page says borrowers "may reside in their homes indefinitely as long as property taxes and homeowner's insurance are kept current." HUD's FHA INFO 2024-22 adds required fees "such as homeowner association (HOA) fees."

Insure the home. The borrower must insure the home against hazards the lender requires, "including but not limited to fire and flood" (24 C.F.R. § 206.27(b)(2)).

Keep it up. "The borrower must keep the property in good repair" (24 C.F.R. § 206.27(b)(5)).

Limits on other arrangements. The borrower may not join a property tax deferral program. Other liens on the home are allowed only if they rank below the HECM (24 C.F.R. § 206.27(b)(3)).

Throughout, interest and charges keep being added, so the balance rises and equity falls. The CFPB warns that a borrower "could face foreclosure" if they run out of money for taxes, insurance or other housing costs.

These duties stay in place for as long as the loan is, so they are worth thinking through honestly.

When Does the Loan Come Due, and What Protects the Family?

Families often worry about this part most. It also includes one of the loan's main protections.

The statute requires repayment to be deferred "until the homeowner's death, the sale of the home, or the occurrence of other events specified in regulations." The term "homeowner" there includes the homeowner's spouse (12 U.S.C. § 1715z-20(j)). Under 24 C.F.R. § 206.27(c), the loan is due in full in these situations:

• A borrower dies and the home is not the principal residence of a surviving borrower.
• A borrower transfers all title and no other borrower keeps title.

With HUD's approval, the loan is also due in these situations:

• The home stops being a borrower's principal residence for reasons other than death, and no other borrower lives there.
• A borrower is away for "longer than 12 consecutive months" because of physical or mental illness, and no other borrower lives there.
• The property charges are not paid.
• Another obligation under the mortgage is not performed.

For an Eligible Non-Borrowing Spouse, repayment after the last borrower's death is deferred while that spouse continues to meet HUD's conditions. This deferral is called the Deferral Period.

The loan is non-recourse, meaning repayment comes from the home, not from the borrower personally. "The borrower shall have no personal liability," and the lender "shall enforce the debt only through sale of the property" with no deficiency judgment (24 C.F.R. § 206.27(b)(8)). The CFPB puts it plainly: "neither you nor your heirs will have to pay back more than your home is worth." The home can still be sold or foreclosed on. The CFPB notes that owners or heirs usually repay "by selling the home."

How a HECM for Purchase Compares to Other Ways to Buy a Home After 62

A buyer over 62 generally has three common paths. Each one trades something.

All cash. There is no debt, but a large part of savings goes into the house.

Forward mortgage. This is the usual kind of mortgage, paid down each month. The buyer needs the income to carry the payments. The CFPB notes that home equity loans "usually have monthly payments" and "depend on your income and credit," and the same is true of other forward mortgages.

HECM for Purchase. The down payment is usually larger, and there is no required monthly payment. The taxes, insurance, upkeep and residence duties still apply.

The fit depends on the buyer's assets, income, goals for heirs, and how long they plan to stay. The CFPB also notes that for someone who may move soon, "a reverse mortgage is an expensive way to cover short term cash needs."

Seeing the three paths side by side can help a family have a clearer conversation about what fits.

What to Ask Before Moving Forward

Questions specific to one person's situation belong with a HUD-approved counselor, who is independent of the lender. HUD's page links its counselor roster. Useful questions to bring include:

• How much of this price might a HECM cover at my age and this home's value?
• What do taxes, insurance, HOA fees and upkeep add up to here, and what happens if I fall behind?
• What will the total cost look like over a short stay and a long one?
• How might this affect what my heirs receive?
• How do the payment options work after the purchase?

A HECM for Purchase may not suit a buyer who expects to move again soon or who has little money left for ongoing costs. The same is true for a buyer whose main aim is leaving the largest possible estate. This page is general information. It is not a loan offer, a commitment to lend, or financial, legal or tax advice. A lender makes credit decisions, subject to the lender's approval and the loan's terms.