A reverse mortgage initial disbursement is the amount that actually funds at closing under 24 CFR 206.25 — mandatory obligations plus any leftover cash you are allowed to take that day — inside the first-year cap. Jay Zayer, CRMP, is a reverse mortgage specialist at reversemortgage.coach. It is not the unused line. It is not month-thirteen capacity. See the first-year disbursement limit for the greater-of test. Stay here for closing day.
Walk through this example: Eben, 75, occupies a house in Palm Desert, California, and wanted “the whole line on the signing table.” Paid-off files often feel the 60% cap on that day. A $200,000 first-mortgage payoff often does not.
A HECM remains FHA-insured. Initial disbursement is not a public bonus check.
What counts as the initial disbursement at closing, and what does not?
Payoff of liens the HECM must clear. Initial MIP of 2.00% of maximum claim amount (Mortgagee Letter 2017-12). Origination up to the $6,000 cap under 24 CFR 206.31. Third-party costs financed from the principal limit. Any cash to Eben that the first-year cap still allows. Unused line that stays unused is not an initial disbursement. A LESA is a set-aside, not a check. Jay confirmed a LESA cannot be added later.
Eben’s leftover cash still lands in a mid-30s to low-50s percent of appraised value, depending on age and expected rate, after those items. Run leftover cash, then ask what actually funds at closing. Do not interpolate HUD rows.
Counseling still costs $125–$175. Neither rule is a closing-day draw.
How do mandatory obligations eat that first-day amount?
A first mortgage is paid. MIP is charged. Origination is charged. 24 CFR 206.25 then asks whether 60% of principal limit, or mandatory obligations plus 10% of principal limit, is larger — never above the principal limit. On a paid-off Palm Desert house, 60% often bites. On a house with a large first, mandatory obligations can push above 60% without breaking the rule. That is the greater-of test working. It is not a loophole I invent.
A second geography: a 62-year-old in Maricopa whose Arizona house is free and clear and who wanted 90% as a cashier’s check at signing. Same regulation. Different feel. Same leftover-cash gate. Annual MIP of 0.50% of outstanding balance still accrues on whatever funded.
Mortgagee Letter 2017-12 did not repeal this draw cap. It only replaced the old MIP schedule. Staying under 60% at closing does not cut initial MIP to 0.50%.
How is initial disbursement different from the rest of year one?
Closing day is one disbursement event. Later line draws inside year one still sit under the same 24 CFR 206.25 cap until the first year lifts. After year one, unused line is available if occupancy under 24 CFR 206.39 still holds. Whatever funded at closing still accrues at 1-month CMT plus lender margin. The first-year cap lifts after year one of the loan, not because funding day arrived.
If Eben’s heirs later keep the Palm Desert house, 24 CFR 206.125(a)(2)(i) still names the outstanding balance, including every dollar of initial disbursement that funded.
California’s seven-day pause still sits before a complete application; it is not a closing-day draw. Arizona Maricopa skips that pause and still lives under the same 24 CFR 206.25 greater-of test. Mortgagee Letter 2017-12 did not repeal the first-year cap. It only replaced the old MIP schedule. Staying under 60% at closing does not cut initial MIP to 0.50%. Claim amount for 2026 still cannot exceed $1,249,125 (Mortgagee Letter 2025-22).
Closing-day money is not timed to the month-ish close I mention on a complete refinance; the 60% cap lifts after year one of the loan. Expected rate was already rounded to 0.125% under 24 CFR 206.3 before anyone asked what funds at closing. Later line draws inside year one still sit under the same 24 CFR 206.25 cap. After year one, unused line is available if occupancy under 24 CFR 206.39 still holds. An adjustable HECM still accrues at 1-month CMT plus lender margin on whatever funded.
A LESA is a set-aside, not a check. Jay confirmed a LESA cannot be added later to manufacture a larger cashier’s check. Unused line that stays unused is not an initial disbursement. Ask for the closing-day figure in writing. Then live with unused line until year one allows more.
Ask for three numbers in writing: mandatory obligations, cash to Eben at funding, and unused line that stays unused. Those three are not the same pile. 24 CFR 206.25 measures the first two inside year one. Unused line is not an initial disbursement. A LESA is not an initial disbursement. A tenure check that starts after closing is not an initial disbursement. Mixing those labels is how Palm Desert families plan a second cashier’s check that HUD will not wire.
Who should not treat closing-day leftover cash as a second closing check?
This path does not help a household that wanted the unused line wired the afternoon they signed. Occupancy is still 24 CFR 206.39. I work with multiple lenders. I will originate when closing-day leftover after 2.00% of claim amount is actually useful inside 24 CFR 206.25. I will turn away a “wire it all today” plan whose only thesis is a seminar.
If leftover cash after costs is decorative, initial disbursement is irrelevant. Skip the HECM. When the math works, ask for the closing-day figure in writing. Then live with unused line until year one allows more. See how to draw for later requests.