Reverse Mortgage Purchase Calculator
Stop guessing how much cash you need to buy your next home with a reverse mortgage. Calculate your exact down payment, see loan options by age, and plan your move today using current HUD lending limits.
What Is a Reverse Mortgage for Purchase?
A Home Equity Conversion Mortgage for Purchase (HECM for Purchase) is an FHA-insured loan specifically designed for seniors aged 62 and older. It allows you to buy a new primary residence and defer mortgage payments for as long as you live in the home.
This financial tool is distinct because it combines the sale of your previous home (or other assets) with the purchase of a new one in a single transaction. Unlike a traditional "forward" mortgage where you make monthly payments, a HECM for Purchase allows you to convert a portion of your home equity into cash to cover the purchase price, eliminating the requirement for a monthly mortgage payment on the new home.
Why It Matters
It allows retirees to downsize, relocate closer to family, or move to a retirement community without taking on a new monthly payment burden, all while preserving cash savings for other retirement needs.
Factors That Affect Your Cash to Close
The amount of cash you need to bring to closing is not arbitrary; it is calculated by subtracting the loan amount (Principal Limit) from the purchase price. Three main variables drive this calculation.
Borrower Age (Youngest)
The age of the youngest borrower (or non-borrowing spouse) is the most critical factor. The older you are, the higher the Principal Limit Factor (PLF) the FHA allows. A higher PLF means the lender gives you more money, significantly reducing your required cash down payment.
Expected Interest Rate
Lenders use a "projected" expected interest rate to calculate your funds available. Higher expected rates reduce the amount of money the FHA will lend you, which in turn increases your required cash down payment.
Home Price vs. FHA Limit
The FHA sets a maximum claim amount (lending limit). Even if you buy a home worth more than this limit ($1,149,825 in 2024), the loan amount is capped, meaning you must pay the purchase price difference in cash.
How We Calculate Your Required Cash
We determine your down payment by first calculating the maximum loan amount the FHA will insure based on your age and current rates. We then subtract that loan amount from the purchase price of the home.
Principal Limit = Home Value × Principal Limit Factor (PLF)
Where:
- Home Value: The lower of the Purchase Price or the FHA Lending Limit ($1,149,825).
- PLF: A percentage set by HUD based on the age of the youngest borrower and the expected interest rate.
Cash to Close = Purchase Price - Principal Limit
How to Use This Calculator
Follow these simple steps to get an accurate estimate of your buying power.
- Enter the Purchase Price: Input the expected sale price of the home you wish to buy.
- Enter Borrower Age: Input the age of the youngest borrower or spouse. This must be at least 62.
- Adjust Interest Rate: Use the slider or input field for the expected rate. Use current market averages for the best estimate.
- Review "Cash to Close": The result will show you exactly how much money you need to bring from savings or the sale of your previous home.
- Tip: Try adjusting the age slider up by a few years to see how much your cash requirement drops if you wait.
Interpreting Your Cash to Close Results
Your "Cash to Close" result usually falls into one of three risk/leverage categories. Understanding which band you are in helps you plan your finances.
Low Cash Needed (0-30% of Price)
High Leverage Scenario: Common for older borrowers (75+). The reverse mortgage covers most of the purchase price, preserving your liquidity.
Moderate Cash Needed (30-60% of Price)
Standard Scenario: Typical for borrowers in their late 60s or early 70s. You will need significant proceeds from a home sale or savings to complete the purchase.
High Cash Needed (60%+ of Price)
High Hurdle: Common for younger borrowers (just turned 62) or high interest rate environments. You are paying the majority of the price in cash; ensure this doesn't drain your emergency reserves.
What this means: If your calculated cash requirement is higher than the equity you have in your current home, you may need to look at a lower-priced property.
Reverse Mortgage vs. Traditional Mortgage
| Feature | HECM for Purchase | Traditional Mortgage |
|---|---|---|
| Monthly Payment | None (as long as you live there) | Required (Principal + Interest) |
| Credit Score Req. | Flexible (Residual income check) | Strict ( typically 620+ ) |
| Income Verification | Ability to pay taxes/insurance | Strict debt-to-income ratios |
| Upfront Cash (Down) | ~40-60% typically | ~3.5% (FHA) to 20% (Conventional) |
Why Your Down Payment Varies
Your result is not static; it changes based on economic factors and personal choices made before closing.
- Interest Rate Volatility: The "Expected Rate" is not the note rate you pay, but a projected index. When the broader market economy forces rates up, the PLF drops, and your required cash down payment rises.
- Timing of Closing: The PLF is locked shortly before closing. If you lock in your rate now but close in 60 days, and rates worsen, you may need to bring more cash to the table than initially estimated.
- Younger Spouse Warning: Adding a younger spouse to the title (even if they aren't on the loan) can be complicated, but if they are a borrower, the loan amount will be calculated based on their age, significantly reducing the loan proceeds and increasing your cash requirement.
When to Use a Reverse Mortgage for Purchase
Downsizing
You sell a large family home that is paid off (or has significant equity) and buy a smaller condo or single-level residence. You use the equity from the sale to cover the "Cash to Close" on the new home, eliminating monthly payments entirely.
Moving Closer to Family
You want to relocate to be near children or grandchildren. A reverse mortgage purchase allows you to buy a suitable home near family without the burden of a new mortgage payment in retirement.
Buy Now, Pay Later Strategy
Use the calculator to verify your equity position. If you find the right home now, you can buy it using the reverse mortgage and keep your investment portfolio intact for growth, rather than liquidating stocks to pay cash.
Limitations of This Estimator
While this tool provides a reliable estimate, actual loan terms may vary.
- Not a Guarantee: Final underwriting decisions by the lender may vary based on property type and financial assessment.
- Mandatory Counseling: HUD requires all borrowers to complete a counseling session with an approved agency before applying. This tool is for planning purposes only.
- Closing Cost Variance: We estimate closing costs at a standard percentage; actual costs vary significantly by state and lender fees.
- Property Eligibility: The home must meet FHA property standards (conddos must be FHA approved).
Obligations Reminder
While there is no monthly mortgage payment, you must pay property taxes, insurance, and maintenance costs. Failure to do so can lead to foreclosure.
Frequently Asked Questions
Sources & References
Our calculations are based on HUD guidelines and federal financial regulations.
- U.S. Department of Housing and Urban Development (HUD) - HECM for Purchase
- Consumer Financial Protection Bureau (CFPB) - Reverse Mortgages Guide
- 2024 FHA HECM Lending Limits: $1,149,825
About the Author
Nithya Madhavan
Web developer and data researcher creating accurate, easy-to-use calculators across health, finance, education, and construction and more. Works with subject-matter experts to ensure formulas meet trusted standards like WHO, NIH, and ISO.