How Does a Reverse Mortgage Purchase Work: Costs and Repayment

A reverse mortgage purchase works by combining a large cash down payment from the buyer with a Home Equity Conversion Mortgage (HECM) from an FHA-approved lender to cover the rest of the price, letting a buyer aged 62 or older own the home outright with no required monthly mortgage payments. The loan balance grows over time instead of shrinking, and it only comes due when the borrower sells, moves out for good, or passes away. This is the HECM for Purchase program, and it closes in a single transaction: the home sale and the reverse mortgage are signed at the same table on the same day.

How the Money Works at Closing

Two sources of funds pay the seller. You bring one piece in cash. The HECM lender wires the other piece directly to the closing agent.

Most buyers should expect to put down roughly 45 to 62 percent of the purchase price. The exact share depends on an FHA formula built around the age of the youngest borrower (or eligible non-borrowing spouse), the lesser of the purchase price or appraised value, and current interest rates. Older borrowers qualify for a larger loan, so they put down less. Buyers closer to 62 put down more.

Your down payment has to come from documented sources: savings, investments, or proceeds from selling a prior home. Borrowed money and bridge loans are not allowed.

The FHA also caps the home value used in the loan calculation. For 2026 the maximum claim amount is $1,249,125.¹ You can still buy a more expensive house, but every dollar of price above that cap has to come out of your own pocket.

Who Qualifies and What You Can Buy

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

The lender then runs a financial assessment of your credit history, cash flow, and residual income to confirm you can keep up with property taxes, insurance, and maintenance going forward.⁴ If residual income falls short, the lender can require a Life Expectancy Set-Aside, which carves out part of your loan proceeds to prepay future taxes and insurance. That protects you from default but reduces the cash the loan can contribute toward the purchase.

Eligible properties include:

Single-family detached houses.
Two- to four-unit buildings, so long as you occupy one unit as your primary home.
FHA-approved condominiums, or units that meet single-unit approval requirements.
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 a Certificate of Occupancy has been issued. Every property has to pass an FHA appraisal confirming it meets federal health and safety standards, and homes in flood zones generally need flood insurance before closing.

The Steps From Counseling to Closing

The transaction tracks a conventional purchase in most respects, with a few additions unique to the HECM program.

Before a lender can even take your application, you must complete a session with a HUD-approved housing counselor. The counselor walks through how the loan works, what it costs, and what your alternatives are, then issues a signed certificate that is valid for 180 calendar days.⁵ If it expires before you close, you have to repeat the session.

From there, the sequence runs like this:

You make a purchase offer with a financing contingency tied to HECM approval.
The lender collects income documentation (Social Security award letters, pensions, tax returns), two months of statements for every bank and investment account, government ID, and a two-year residency history.
An FHA-approved appraiser establishes the home’s value and inspects for health and safety issues that a conventional appraisal would skip.
Underwriting pulls everything together: your finances, the appraisal, and a title search.
At closing, you sign the note and deed of trust, wire your down payment to the closing agent, and the lender funds the rest. The deed is recorded and the reverse mortgage lien attaches at the same time.

Because both pieces close together, there is no stretch of time where you own the home without the reverse mortgage in place.

What It Costs

HECM for Purchase carries fees at closing and charges that accrue over the life of the loan.

At Closing

The FHA charges an upfront mortgage insurance premium of 2 percent of the maximum claim amount, which is the lesser of the purchase price, the appraised value, or the 2026 cap of $1,249,125. On a $400,000 home that is $8,000. You can finance the premium into the loan, but doing so cuts into the proceeds available to cover the price.

Lender origination fees are capped by formula: the greater of $2,500, or 2 percent of the first $200,000 of home value plus 1 percent of value above $200,000, with a hard ceiling of $6,000. On top of that come third-party costs for the appraisal, title insurance, recording fees, and any required inspections.

Over Time

The FHA charges an annual mortgage insurance premium of 0.5 percent of the outstanding loan balance.⁶ It is not billed; it is added to what you owe. Interest at the loan’s fixed or adjustable rate also accrues on the balance. Because nothing is being paid down each month, the balance grows the entire time you hold the loan.

What You Still Have to Do After You Move In

Owning the home with a HECM does not end your obligations. You have to keep meeting several conditions for as long as the loan is in place:

Live in the home as your principal residence. The servicer confirms this through an annual certification you sign and return.³
Keep property taxes and homeowners insurance current. If you have a Life Expectancy Set-Aside, the servicer pays these from the reserved funds; otherwise, the payments are yours to make directly.
Stay current on any HOA dues and special assessments.
Maintain the home to FHA standards. Letting it deteriorate can put the loan in default.

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

When the Loan Has to Be Repaid

A HECM for Purchase is repaid in a single payoff rather than through monthly installments. The full balance becomes due when any of these happens:⁷

The last surviving borrower (or eligible non-borrowing spouse) dies.
You sell or transfer the home.
You stop using it as your principal residence, which includes spending more than 12 consecutive months in a nursing home or other healthcare facility.⁸
You fail to keep up with taxes, insurance, HOA dues, or maintenance.

Repayment usually comes from selling the home. HECMs are non-recourse loans, so neither you nor your estate ever owes more than the home is worth; FHA insurance covers any shortfall.

Heirs generally have three paths. They can pay the loan off and keep the home, often by refinancing. They can sell it; the lender allows six months, and if the home is actively being marketed, HUD can approve up to two additional 90-day extensions.⁹ Or they can walk away and let the lender take the home, with no claim against other estate assets. If heirs want to buy the home from the estate when the loan balance is higher than the home’s value, they can satisfy the debt for 95 percent of the current appraised value.¹⁰

If Your Spouse Is Under 62

A spouse younger than 62 cannot be listed as a co-borrower. Federal rules address the risk this creates through a Deferral Period for an Eligible Non-Borrowing Spouse, which lets the spouse stay in the home after the borrower dies or moves to care.⁷

To qualify, the spouse must have been married to the borrower when the loan was signed and have remained married through the triggering event, must be identified as a non-borrowing spouse in the original loan documents, and must have lived in the home at closing and continue to live there as their principal residence.⁴ A spouse who was not disclosed in the original paperwork cannot be added later. During the deferral, the spouse must keep taxes, insurance, and maintenance current, but no loan payments come due. Listing a younger non-borrowing spouse in the application does reduce how much you can borrow, because the FHA uses the younger age to set the principal limit, meaning a larger down payment at closing.

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