If you’re buying with a HECM for Purchase (H4P) in 2026, you’ll typically bring 45% to 62% or more of the purchase price to closing in cash. That cash has to come from an FHA-approved source: sale of a prior residence, seasoned deposit accounts, retirement withdrawals, investment liquidations, or a documented family gift. And bridge loans, credit card advances, unsecured personal loans, seller financing, and any lender credit toward the down payment? All prohibited under HUD Mortgagee Letter 2024-06, which took effect for HECM case numbers assigned on or after April 29, 2024.
The 2026 FHA HECM lending limit sits at $1,249,125. If your target home costs more than that, the HECM caps at the limit and you cover the difference in cash out of pocket.
What the Required Monetary Investment actually is
Under 24 CFR 206.44, your Required Monetary Investment (RMI) equals the sales price minus the HECM principal limit available at closing, plus any HECM fees that aren’t financed into the loan, minus the earnest money you’ve already put down. That’s the gap you fund.
Here’s how the age math works: the younger the youngest borrower on the note, the smaller the principal limit, and the bigger the RMI. So a 62-year-old buyer in a rising-rate environment can face an RMI north of 60% of the sales price. A 78-year-old buyer at the same rate is looking at closer to 45%. Exact percentages depend on the youngest borrower’s age, the expected rate at case-number assignment, and the FHA lending limit in force. Age-tiered percentage tables copied from originator sites (and there are hundreds of them floating around) go stale fast. Ask your HECM counselor for a HUD-formatted amortization projection dated to your case number.
Allowed and prohibited sources at a glance
| Allowed for RMI | Prohibited for RMI |
|---|---|
| Sale proceeds from a prior primary residence | Bridge or interim financing |
| Seasoned savings, checking, money market | Credit card cash advances |
| Retirement account withdrawals (401(k), IRA) | Unsecured personal loans |
| Investment account liquidations | HELOC on another property the borrower owns |
| HECM loan proceeds (for the balance above RMI) | Seller financing |
| Documented gift funds from family or acceptable donors | Rent-back or leaseback arrangements |
| Employer assistance, disaster relief grants | Premium pricing or lender credits toward RMI |
| Earnest money deposit (offsets RMI) | Lender-paid or TPO-paid IPCs |
The four prohibited sources seniors most often try to use (and they come up over and over in counseling sessions) sit on the top-right of that list: bridge loans, credit card advances, a HELOC against a home the buyer is keeping, and unsecured personal loans. And all four? Categorically ruled out by ML 2024-06.
FHA didn’t restate this for fun. HECMs are negatively amortizing, so any borrowed cash used for RMI compounds against a loan that’s already growing on its own.
Borrowed money can’t fund RMI on a HECM for Purchase, full stop.
Gift funds are allowed and pretty common. The donor has to supply a gift letter with name, address, phone, relationship to the borrower, gift amount, a “no repayment expected” statement, and a signature. The paper trail also needs the donor’s bank statement showing the funds leaving and the borrower’s statement showing the deposit landing – both, not one or the other.
The 6% Interested Party Contribution cap after April 2024
An Interested Party Contribution (IPC) is money paid toward your closing costs by anyone with a financial interest in the transaction – the seller, the real estate agent, a builder, a developer. Under 24 CFR 206.44 and ML 2024-06, IPCs on an H4P can’t exceed 6% of the sales price.
So what can that 6% actually cover? The origination fee, third-party closing costs (appraisal, credit, title), the HECM Initial Mortgage Insurance Premium, prepaid items, and recording fees. What it can’t cover: any portion of the RMI itself, and the HECM counseling fee. Fees the seller is required to pay by state or local law sit outside the 6% cap and don’t count against it.
Two things changed on April 29, 2024 that older articles still get wrong. Discount points and interest-rate buydowns aren’t allowable in H4P, even inside the 6%. The proposed rule floated permitting them; the final rule restored the prohibition. Lender-paid IPCs and IPCs paid by a third-party originator are also prohibited. HUD’s rationale for both bans is the same negative-amortization argument you keep running into with this program – a credit dressed up as pricing costs you more over the life of the loan than it looks like it saves at closing.
Seasoning: two rules, easy to confuse
Two separate seasoning concepts hit H4P files, and readers routinely blend them together.
The 24 CFR 206.36 12-month rule. If you have a non-HECM lien on a property involved in the transaction, that lien is subject to a 12-month seasoning test with a $500 cumulative cash-out threshold. The clock runs from the existing lien’s original closing date to the HECM closing date. And the 2017 rule change moved the endpoint from application to closing (which matters more than it sounds, because it shrinks the window you can actually work in). In H4P, this bites when you’re selling a departing residence with an active HELOC and you’ve drawn on it within the last 12 months. If total draws in that window exceed $500, the lien gets treated as unseasoned.
But an unseasoned HELOC can still be resolved. You can pay it off at closing using sale proceeds, HECM proceeds, or a combination, subject to the initial disbursement limit on HECM funds. Satisfying the lien outside of closing from documented borrower funds before final loan approval is another compliant path.
The FHA “large deposit” doctrine. This one’s a documentation rule, not a regulation, but it functions like seasoning for the borrower’s own cash. Any recent large deposit into an account funding RMI has to be sourced. Underwriting typically wants two months of statements from the origin account plus a written explanation. So if a $40,000 deposit lands in your checking account last month, the file needs proof it came from an acceptable source – not a bridge loan, not an undisclosed gift. Failure to source triggers a conditional denial and delays endorsement, sometimes by weeks, sometimes longer if the bank takes its time producing the statements underwriting wants.
Documentation you’ll need
Expect to hand over two months of statements for every account funding the RMI (including the account that received any recent large deposit), along with retirement withdrawal or distribution paperwork showing the source, tax treatment, and net amount. If sale proceeds from a departing residence are funding your RMI, you’ll need the settlement statement for that sale. Gift funds bring their own small paperwork chain: a gift letter with donor name, address, phone, relationship, gift amount, no-repayment statement, and signature, plus the donor’s bank statement showing the funds leaving and your bank statement showing the corresponding deposit. And don’t forget earnest money deposit source documentation – if the EMD itself was funded by a gift, gift standards apply to it too.
Failure patterns worth naming
A $5,000 HELOC draw against the departing residence six months before HECM closing resets the seasoning clock. The HELOC will need to be paid off at closing or outside of closing from properly documented borrower funds, and the file may need additional treatment before endorsement.
Then there’s the “bridge loan we’ll pay off with the HECM at closing” pitch. Prohibited. There’s no compliant version of that structure, no matter how the originator dresses it up.
A “lender credit toward your down payment” is also prohibited if the credit derives from premium pricing on the note rate or from lender funds. So ask the originator directly: is the credit funded by an above-par rate? If yes, it doesn’t comply with ML 2024-06.
And a seller offering to cover the HECM counseling fee isn’t permitted either. The counseling fee sits outside what IPCs can cover under 24 CFR 206.44.
Questions to ask before signing
Before you sign a purchase contract or accept a loan estimate, ask the originator two questions that need a “no” answer:
- Is the lender giving me a credit toward my Required Monetary Investment?
- Are discount points or a rate buydown being paid by the seller or included inside the 6% IPC?
Also ask for the itemized IPC breakdown showing each interested party, each fee category, and the running total against the 6% cap. HUD requires HECM counseling before application anyway – use that session to test your file’s sourcing plan against a neutral third party. Experienced originators structure the file this way before it ever reaches underwriting, not after it comes back with conditions and everyone is scrambling to fix it under a closing-date clock.
HECM for Purchase down payment FAQ
How much do I need to put down on a HECM for Purchase?
Typically 45% to 62% or more of the sales price, funded from an FHA-approved source. The exact figure depends on the youngest borrower’s age, the expected rate at case-number assignment, and the 2026 FHA HECM lending limit of $1,249,125.
Can I use a HELOC on my current home to fund my H4P down payment?
No. A HELOC on another property you own is a prohibited source under ML 2024-06. But a HELOC on a departing residence you’re actually selling at closing is treated differently, and it’s governed by the 24 CFR 206.36 12-month seasoning rule.
Can the seller pay closing costs on a HECM for Purchase in 2026?
Yes, up to 6% of the sales price under the IPC cap, and only toward allowable items: origination fee, third-party closing costs, IMIP, prepaids, and recording. The 6% can’t cover the RMI, the HECM counseling fee, or any discount points or rate buydown.
Are bridge loans allowed for a HECM for Purchase?
No. Bridge and interim financing are prohibited RMI sources under ML 2024-06. And any structure that plans to repay a bridge loan with HECM proceeds at closing is out of compliance, no matter how the originator packages it.
Can I use gift funds from my children for a HECM for Purchase down payment?
Yes. Gift funds from family are allowed with a signed gift letter and a full paper trail. Acceptable-donor treatment generally mirrors FHA forward standards; confirm any non-relative donor (a fiancé, a longtime partner, a close friend) with the lender before you rely on that money.
Requirements vary by lender and by state. Confirm current thresholds, the 2026 FHA HECM lending limit, and the treatment of any specific funding source with a HUD-approved HECM counselor and an FHA-approved lender before you sign a purchase contract. This article is informational only and isn’t financial advice.
