A reverse mortgage downsize strategy is a sale of the house you occupy now, then a HECM for Purchase under 24 CFR 206.44 on the smaller principal residence you will actually occupy. Jay Zayer, CRMP, is a reverse mortgage specialist at reversemortgage.coach. The first loan, if you already have a HECM, gets paid through the sale. The second loan is a new origination. They are not a portable package.
Henrik, 70, occupies a two-story in Redlands, California and wants a one-story in the same county. Sale proceeds look large. HECM for Purchase still needs a large cash investment because HUD’s principal limit is only a slice of price. See what HECM for Purchase is. Stay here for how the two closings have to sequence.
A HECM is FHA-insured. Downsizing is not a government moving benefit.
What cash does 24 CFR 206.44 actually require on the replacement house?
Required monetary investment equals purchase price minus the principal limit, plus HECM loan-related fees not paid from that principal limit, minus earnest money already down. Rolling MIP and fees into the principal limit increases cash to close by those same dollars. If price exceeds the 2026 maximum claim amount of $1,249,125 (HUD Mortgagee Letter 2025-22), proceeds are capped as if MCA were that figure.
Principal limits still land in the mid-30s to low-50s percent of the claim amount used, depending on youngest borrower age and expected rate. I will not quote a live PLF cell. Run Henrik’s replacement price with the expected-rate assumption the shop will lock. Do not interpolate HUD rows.
Initial MIP is 2.00 percent of MCA on the new HECM (HUD Mortgagee Letter 2017-12). Origination cannot exceed $6,000 under 24 CFR 206.31. Third-party costs still exist. On site illustrations a $750,000 purchase often carries about $25,000 of that stack. Your Loan Estimate is the file.
How do you sequence the sale, counseling, and the purchase closing?
Counsel on the purchase HECM ($125–$175, certificate 180 days) early enough that California Civil Code 1923.2(k) can run its seven days after the session. Arizona purchases skip that Civil Code and still need 24 CFR 206.41 counseling. Do not wait until the sale has already recorded and the certificate is stale.
The current house, if it has a HECM, pays off through that sale escrow. See selling with an active HECM. If it has a forward mortgage, that payoff is just another closing cost on the sale. Net proceeds become the purchase investment, not a second reverse on the empty two-story.
A second geography: a 62-year-old in Yuma, Arizona selling a large lot and buying a smaller patio home. Younger age means a smaller principal limit and more cash in. Age 62 is eligible. It is not the same cash need as age 80. Expected rate still rounds to 0.125 percent under 24 CFR 206.3.
Jay confirmed a LESA, if residual income requires one on the new house, is set at that origination only. You cannot add it later. Insurance and tax figures on the new house belong in the financial assessment before anyone wires earnest money.
Proprietary purchase is not a HUD product I will invent. HomeSafe, Longbridge Platinum, Finance of America, and Mutual of Omaha Secure Equity are programs I originate. Confirm in writing whether any channel will do a proprietary purchase. Do not assume they will.
What does Prop 19 change, and what does it refuse to change?
If Henrik qualifies to transfer a Proposition 13 base-year value to the replacement California home under Revenue and Taxation Code section 69.6, the tax bill on the new house may stay lower than a full reassessment. That is an assessor filing. It does not reduce 24 CFR 206.44 cash. Arizona has no Prop 19 analog. See Prop 19 interaction.
An adjustable HECM on the new house will accrue at 1-month CMT plus the lender’s margin. The sale of the old house does not freeze that index.
On a complete refinance I still quote about 30 days to close. A purchase is not that refinance. Contract contingencies, condo packets, and repairs can stretch it. I will not promise a sale-and-purchase double close on a wedding date.
Annual MIP of 0.50 percent of outstanding balance starts after the purchase funds. It does not start on the house you sold.
What if the replacement house is a condo or a manufactured home?
Then project approval or foundation-and-title-as-realty work has to finish before anyone treats sale proceeds as a locked HECM for Purchase. FHA condo lists and manufactured-home checklists stall purchases that a site-built house would not. See condo application process and manufactured home process. Henrik’s Redlands sale can still close. The one-story cannot fund until those exhibits exist.
I will not invent a HUD HOA-ratio chart or an engineer form number. Ask the underwriter. Counseling still costs $125–$175. The certificate lasts 180 days. A sale that records while the condo packet is incomplete is how 180 days die on a deny.
The 2026 claim cap of $1,249,125 (HUD Mortgagee Letter 2025-22) still caps MCA on the purchase. Annual MIP of 0.50 percent of outstanding balance still starts after that purchase funds, not after the Redlands listing goes live.
Who should not treat sale proceeds as if HUD will finance 80 percent of the next house?
This path does not help a household that spends the sale cash and then asks HECM for Purchase to fill a hole HUD never priced. I work with multiple lenders. 24 CFR 206.44 is still the investment formula.
It does not help someone who will rent the Redlands house and “HECM the new one.” Two houses, one principal residence. Occupancy will fail one of them.
Heirs later keep the occupied replacement house by paying the outstanding balance under 24 CFR 206.125(a)(2)(i). Downsizing does not rewrite that rule. Occupying the smaller house, paying its charges, and bringing the cash 24 CFR 206.44 actually requires — that is the strategy. The rest is a listing and a Loan Estimate.