With a HECM for Purchase, your cash down payment is the price minus the principal limit plus any costs not financed; in our hypothetical at age 72 and a 6.0% expected rate, that is $403,600 on a $650,000 home (24 CFR 206.44; HUD principal limit factor 0.416, tables effective October 2, 2017).
What a HECM for Purchase is
The CFPB describes it as a Home Equity Conversion Mortgage that lets people 62 and older buy a new principal residence with reverse mortgage proceeds (CFPB, Can I use a reverse mortgage loan to buy a home?, last reviewed July 11, 2022). The youngest borrower must be 62 or older at closing (24 CFR 206.33, checked October 14, 2026).
Instead of taking a regular mortgage with monthly payments, you put down a larger amount of your own money and the reverse mortgage covers the rest. No monthly mortgage payment is due. Interest and fees are added to the balance, which grows until you sell, move out or die. You still must live there, pay property taxes and insurance, and keep the home in good repair (same source). See how a reverse mortgage works.
How the down payment is figured
The maximum claim amount on a purchase is the lesser of the appraised value, the sales price, or the national limit (24 CFR 206.3), which is $1,249,125 for 2026 (HUD, FHA Mortgage Limits, HECM, CY2026, effective January 1, 2026). That amount x HUD's principal limit factor gives the principal limit. The factor rises with the age of the youngest borrower and falls as the expected interest rate rises (HUD Mortgagee Letter 2017-12, effective October 2, 2017).
At closing you must provide the difference between the principal limit and the sale price, plus any loan fees not financed, minus your earnest money deposit (24 CFR 206.44(a)). The money may come from cash on hand or from selling other assets, such as your old house (206.44(b)). The seller may pay only fees required by state or local law, fees customarily paid by sellers in that area, and a home warranty (206.44(c)).
Costs include the 2% upfront mortgage insurance premium on the maximum claim amount, 0.5% a year on the balance (Mortgagee Letter 2017-12), an origination fee capped at the greater of $2,500 or 2% of the first $200,000 plus 1% above that, never more than $6,000 (24 CFR 206.31), and third-party closing costs. The CFPB notes closing costs will be higher than with other reverse mortgages (CFPB, last reviewed July 11, 2022).
Rules that are easy to trip on
- Move in within 60 days. Each borrower, and any eligible non-borrowing spouse, must occupy the home within 60 days of closing (24 CFR 206.39(b)).
- The home must be finished. New construction qualifies only once it is complete and habitable, shown by a certificate of occupancy or the local equivalent (24 CFR 206.45(g)). The seller must fix major problems that threaten health or safety before closing (24 CFR 206.47(e)).
- Not every home qualifies. Cooperative units and some manufactured homes are not eligible (CFPB, last reviewed July 11, 2022).
- An existing HECM must be paid off first. If you already have a HECM on the old house, it must be paid off before the new loan can be insured (24 CFR 206.34(b)).
- No three-day cancellation. The federal right to cancel after closing does not apply to a loan used to buy your principal home (12 CFR 1026.23(f)(1), checked October 14, 2026). Decide before you close.
- Counseling is required for the borrower, any non-borrowing spouse and any non-borrowing owner (24 CFR 206.41). Use the CFPB housing counselor search or HUD's line, 800-569-4287.
Selling the old house: the tax side
If the down payment comes from selling your old home, the tax rules matter. If you owned and lived in it 2 of the last 5 years, up to $250,000 of gain is excluded, or $500,000 married filing jointly (IRS, Topic 701, Sale of your home, checked October 14, 2026). The old "over 55" one-time exclusion no longer exists; see what replaced it.
If the gain is larger than the exclusion, an installment sale is one way to spread the taxable part: the buyer pays over time and you report gain as payments arrive, on Form 6252 (26 U.S.C. 453). The trade-offs, said once: you depend on the buyer's credit, the money comes over time, the note can count for Medicaid unless it meets 42 U.S.C. 1396p(c)(1)(I), and it must be set up before closing. It also works against a HECM for Purchase, which needs the down payment in cash at closing. See Form 6252 and run your numbers in the home sale capital gains calculator.
When a HECM for Purchase can make sense
It can fit a buyer who wants to right-size into a home they plan to stay in for many years, wants to keep more of the old home's proceeds in savings rather than in the new house, and can comfortably pay taxes, insurance and upkeep. It fits less well if you may move again within a few years, because the upfront costs are large; if the new home is near the price of the old one, so little cash is freed; or if leaving the home free and clear to heirs matters most. Compare it with paying cash and with a smaller regular mortgage, and see reverse mortgage costs.
A plain example: selling one home and buying the next
Hypothetical: a married couple, youngest 72, sells the old home for $900,000 (bought for $300,000) and buys a $650,000 condo with a HECM for Purchase. Costs: upfront mortgage insurance $13,000 (2% of $650,000), origination $6,000 (the formula gives $8,500, capped at $6,000), and a hypothetical $5,000 of other closing costs, all financed, for $24,000. Principal limit factors are from HUD's tables effective October 2, 2017; the expected rates are hypothetical.
| Expected rate | Principal limit factor | Principal limit | Cash needed at closing | Left from old home sale |
|---|---|---|---|---|
| 5.0% | 0.467 | $303,550 | $370,450 | $529,550 |
| 6.0% | 0.416 | $270,400 | $403,600 | $496,400 |
| 7.0% | 0.372 | $241,800 | $432,200 | $467,800 |
Arithmetic at 6.0%: $650,000 x 0.416 = $270,400. Cash needed = $650,000 + $24,000 - $270,400 = $403,600. Left = $900,000 - $403,600 = $496,400, before selling costs and tax. The gain on the old home is $600,000; after the $500,000 exclusion, $100,000 is taxable. Paying all cash instead would leave $250,000, with no loan balance growing against the condo.
Red flags
- A seller or builder offering to cover your down payment or extra costs beyond what HUD allows.
- Pressure to close on a home that is not finished or has no certificate of occupancy.
- A plan that has you move in later than 60 days after closing.
- Being told you can cancel after closing like a refinance.
- Skipping or rushing the required HUD counseling.
- Using the freed-up cash to buy an annuity or insurance as part of the deal.
- Not showing the loan balance projected 10 and 15 years out.
- A quoted down payment that leaves out the upfront insurance premium and fees.
- No NMLS number for the lender or loan officer.
- A plan to fund the down payment from an installment sale of the old home, which pays you over time rather than at closing.
Questions to ask before you sign
- What principal limit factor and expected rate are you using, and how much will I need to bring to closing?
- Which costs are financed and which do I pay in cash?
- What will the loan balance be in 5, 10 and 15 years?
- Is the home eligible, and is it finished with a certificate of occupancy?
- Can I move in within 60 days of closing?
- What may the seller pay toward my costs under HUD rules?
- What happens to my spouse if I die or move into care?
- What must I pay every year for taxes, insurance and dues, and is any set-aside required?
- How does this compare with paying cash or a smaller regular mortgage?
- How much of the gain on my old house is taxable after the section 121 exclusion?
Long-Term Care and Your Home: Read This Before You Sign
A one-page checklist: what Medicare will and will not pay, the Medicaid look-back and estate recovery basics, the questions to ask before you buy long-term care coverage or take a reverse mortgage, and the tax rules if the house is sold. Reverse mortgage costs and questions, plus home-sale tax rules (section 121, installment sale) when you right-size. We’ll email it to you.
The Retirement Literacy Foundation is a 501(c)(3) public charity (EIN 41-5062266). General education, not tax, legal or investment advice. Nothing is sold here. Unsubscribe any time.
Sources
- CFPB: Can I use a reverse mortgage loan to buy a home? (last reviewed July 11, 2022)
- eCFR: 24 CFR 206.44, Monetary investment for HECM for Purchase program (checked October 14, 2026)
- eCFR: 24 CFR part 206, sections 206.3, 206.31, 206.33, 206.34, 206.39, 206.41, 206.45, 206.47 (checked October 14, 2026)
- HUD: FHA Mortgage Limits, HECM, calendar year 2026 (effective January 1, 2026)
- HUD: Mortgagee Letter 2017-12, HECM mortgage insurance premiums and principal limit factors (August 29, 2017)
- eCFR: 12 CFR 1026.23, Right of rescission (checked October 14, 2026)
- IRS: Topic 701, Sale of your home (checked October 14, 2026)
- Cornell Law School LII: 26 U.S. Code 453, Installment method (checked October 14, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.