How Does a Reverse Mortgage Purchase Work: Costs and Eligibility

A reverse mortgage for purchase, formally called a Home Equity Conversion Mortgage (HECM) for Purchase, lets a buyer 62 or older combine a large cash down payment with a federally insured reverse mortgage to buy a primary residence in a single closing. You bring roughly 45 to 62 percent of the price in cash, the reverse mortgage covers the rest, and you make no monthly mortgage payments. The loan balance grows over time and is repaid when you sell, move out, or pass away.

How Much You Need to Bring to Closing

The down payment is set by an FHA formula that weighs your age (or the age of a younger eligible non-borrowing spouse), the lesser of the purchase price or appraised value, and current interest rates. Older borrowers qualify for a larger loan and put less down. Someone right at 62 puts down more, because the projected loan life is longer.

Plan on 45 to 62 percent of the purchase price in cash for most buyers. The lender wires the balance to the closing agent from reverse mortgage proceeds. Your cash has to come from documented sources: savings, investments, or proceeds from selling a prior home. Bridge loans and borrowed funds are not allowed.

The FHA also caps the home value used in the calculation. For 2026, the maximum claim amount is $1,249,125.¹ You can buy a more expensive home, but anything above that cap comes entirely out of your own pocket.

Who Qualifies

Every borrower on the loan must be at least 62 at the time of application.² The home has to be your principal residence, so vacation homes and rentals do not qualify.³ You cannot be delinquent on federal debts such as income taxes or federal student loans.

The lender then runs a financial assessment that looks at credit history, cash flow, and residual income to confirm you can carry property taxes, insurance, and maintenance. If your residual income comes up short, the lender may require a Life Expectancy Set-Aside, or LESA. A LESA carves out a portion of your loan proceeds to pay future taxes and insurance. That protects the lender and reduces default risk, but it also lowers the cash the loan can put toward the purchase.⁴

Before a lender can take your application, you must complete a session with a HUD-approved housing counselor. The signed certificate is valid for 180 days.⁵

Which Homes Qualify

HUD limits eligible property types. Qualifying homes include:

Single-family detached houses.
Two-to-four-unit properties, provided you live in one of the units.
Condominiums in an FHA-approved project or approved through single-unit approval.
Manufactured homes built after June 15, 1976, on a permanent foundation and carrying a HUD certification label.

New construction qualifies only after the home is finished and the Certificate of Occupancy has been issued. Every property must pass an FHA appraisal that confirms it meets federal health and safety standards, and homes in flood zones typically need flood insurance in place before closing.

The Steps From Offer to Closing

A HECM for Purchase moves in the same general sequence as a conventional home purchase, with a few differences that matter:

You submit an offer with a financing contingency tied to HECM approval.
The lender orders an FHA-compliant appraisal that both values the home and checks it against FHA property standards.
Underwriting reviews your financial documents, the appraisal, and title work.
At closing, you wire your down payment to the closing agent and the lender funds the rest. You sign the promissory note and deed of trust.
Title transfers to you when the deed is recorded, and the reverse mortgage lien is recorded at the same time.

The home purchase and the reverse mortgage close simultaneously in a single event, so there is no window where you own the home without the reverse mortgage attached.

What It Costs

Paid at Closing

An upfront FHA mortgage insurance premium of 2 percent of the maximum claim amount (the lesser of the purchase price, appraised value, or the 2026 cap of $1,249,125). On a $400,000 home that is $8,000. You can finance it into the loan, but doing so reduces the proceeds available for the purchase.

An origination fee equal to the greater of $2,500 or 2 percent of the first $200,000 of home value plus 1 percent of any value above that, capped at $6,000.

Third-party closing costs, including the FHA appraisal, title insurance, recording fees, and any required inspections. Amounts vary by location.

Accruing Over the Life of the Loan

The FHA charges an annual mortgage insurance premium of 0.5 percent of the outstanding loan balance.⁶ It is not billed separately; it is added to your balance each year. Interest on the loan (fixed or adjustable, depending on the product) also accrues on the balance. Because nothing is being paid down, the balance grows.

What You Have to Keep Doing After Closing

The home has to remain your principal residence, and the servicer verifies that through an annual certification you sign and return.³ You must keep property taxes and homeowners insurance current. If you have a LESA, the servicer pays them from the set-aside; otherwise, they are on you. HOA dues and special assessments have to stay current. You are also responsible for maintaining the home to FHA standards.

Falling behind on any of those obligations gives the lender grounds to declare the loan due and payable, which can force a sale.

When the Loan Becomes Due

A HECM is repaid all at once, not on a monthly schedule. The full balance comes due when any of these happen:⁷

The last surviving borrower or eligible non-borrowing spouse dies.
You sell the home or transfer title.
You stop using the home as your principal residence, including spending more than 12 consecutive months in a nursing home or assisted living facility.⁸
You fall behind on taxes, insurance, HOA dues, or maintenance.

The loan is usually repaid by selling the home. The HECM is a non-recourse loan, so neither you nor your heirs ever owe more than the home is worth; FHA insurance covers any shortfall.

Younger Spouses and Heirs

If your spouse is under 62, they cannot be a co-borrower. Federal rules protect them through a Deferral Period for an Eligible Non-Borrowing Spouse.⁷ To qualify, the spouse must have been married to you when the loan was signed and stayed married through your death or move to a care facility, must have been named as a non-borrowing spouse in the original loan documents, and must have lived in the home at closing and continued to occupy it.⁴ A spouse not disclosed at origination cannot be added later. During the deferral, the spouse still has to pay taxes and insurance and maintain the home. Including a younger non-borrowing spouse in the calculation also reduces the loan amount, because the FHA uses the younger age to set the principal limit.

When the loan comes due, heirs generally have three paths. They can pay off the loan (often through refinancing) and keep the home. They can sell it: the lender allows six months, with the option to request HUD approval for up to two additional 90-day extensions if the home is actively marketed, bringing the total to about a year.⁹ Or they can walk away, and the FHA insurance covers any shortfall. If heirs want to buy the home from the estate, they can satisfy the debt for 95 percent of the current appraised value, even when the loan balance is higher.¹⁰

Taxes and Public Benefits

Reverse mortgage proceeds are loan advances, not income, and are not subject to federal income tax.¹¹ Accrued interest is generally not deductible until the loan is actually repaid, typically when the home is sold, at which point it may be deductible as home mortgage interest subject to the usual limits.¹²

Proceeds also do not count as income for Supplemental Security Income (SSI) or Medicaid. Once the money sits in your account, though, it counts as a resource, and going over the program’s resource limit can cost you eligibility.¹³ If you rely on means-tested benefits, talk with a benefits planner before you close.

1
Department of Housing and Urban Development. HUD’s Federal Housing Administration Announces 2026 Loan Limits
2
Consumer Financial Protection Bureau. Can Anyone Take Out a Reverse Mortgage Loan?
3
HelpWithMyBank.gov. What Are the Requirements for an FHA HECM?
4
eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance
5
Department of Housing and Urban Development. HECM Counseling Requirements
6
Consumer Financial Protection Bureau. How Much Does a Reverse Mortgage Loan Cost?
7
eCFR. 24 CFR 206.27 – Mortgage Provisions
8
Consumer Financial Protection Bureau. When Do I Have to Pay Back a Reverse Mortgage Loan?
9
Department of Housing and Urban Development. HECM Counseling Protocol
10
Department of Housing and Urban Development. HECM Program Handbook 4235.1 REV-1
11
Internal Revenue Service. Other FAQs
12
Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
13
Department of Health and Human Services. Letter Regarding Treatment of Lump Sums and Reverse Mortgage Proceeds for Medicaid Eligibility