Can You Use a Reverse Mortgage to Buy a Rental Property?

Most people in Southern Maryland who are over 62 have one large asset. It is not the 401(k). It is the house. Across the country, homeowners 62 and older hold more than $14 trillion in home equity, according to the National Reverse Mortgage Lenders Association. In Hughesville, Charlotte Hall, Mechanicsville, Leonardtown, California, and Lexington Park, a lot of that equity is sitting in homes that were bought decades ago and paid off years ago.

Equity is safe. It is also idle. It does not pay a bill, it does not produce income, and you cannot spend it without selling the house or borrowing against it.

I talk with a lot of retirees who want the same three things: to stay in their home, to have more monthly income, and to leave something behind. A reverse mortgage, used carefully, can sometimes help with all three. One way it does that is by moving part of your equity out of the house you live in and into a property that pays rent.

This is the first of a four-part series. Over the next three Fridays I will walk through the math, a Hughesville example built with a CPA, and the situations where this strategy is the wrong move. Today is the foundation.

What is a reverse mortgage, in plain terms?

The reverse mortgage most people use is the Home Equity Conversion Mortgage, or HECM. It is insured by the FHA and available to homeowners 62 and older on their primary residence. In 2026, the FHA lending limit for a HECM is $1,249,125.

A HECM lets you turn part of your home’s equity into cash. You can take it as a lump sum at closing, as monthly payments, as a line of credit you draw on when you need it, or as a mix of those.

Here is the part most people misunderstand. Monthly payments on a reverse mortgage are optional. You can pay as much or as little as you want, whenever you want, or you can pay nothing and let the balance be repaid when you sell, move out permanently, or pass away. You keep the title. The home is still yours.

What is not optional: you must keep paying your property taxes, homeowner’s insurance, and any HOA dues, keep the home in good repair, and continue to live there as your primary residence.

A HECM is also a non-recourse loan. Neither you nor your heirs will ever owe more than the home is worth when it is sold. FHA insurance covers any shortfall.

Can reverse mortgage money be used to buy an investment property?

Yes, with one important distinction.

There is a program called HECM for Purchase that lets people 62 and older buy a new home with a reverse mortgage. That program only works for a home you will live in as your primary residence. It cannot be used to buy a rental.

The strategy in this series works differently. It uses two separate loans on two separate properties:

1. A HECM on the home you live in. This produces cash or a line of credit.
2. An investment property loan on the rental. Part of the HECM proceeds becomes the down payment. The rental is financed with a loan designed for investors, often a DSCR loan, which qualifies on the property’s rent instead of your personal income.

The rent pays the investment mortgage, which is required every month. Whatever is left over can go toward the reverse mortgage balance, which is optional. That voluntary payment slows the growth of your reverse mortgage balance and, on an adjustable-rate HECM, restores room on your line of credit.

Why would a retiree want to do this?

Because the two properties do different jobs.

Your home gives you a place to live. It will likely keep appreciating whether or not you have a reverse mortgage on it.

The rental gives you a second appreciating asset, a tenant who is paying down its mortgage every month, and possible tax benefits such as depreciation. Over ten or fifteen years, that can add up to real wealth that passes to your family.

In plain terms: you are putting a portion of idle equity to work, in the same way a disciplined investor would move cash from a savings account into something that produces a return. JL Collins would remind you that the point of money is to buy freedom. Equity that never moves does not buy much of anything.

What are the limits I should know up front?

I believe in giving people accurate information before they get excited. Here are the rules that shape this strategy:

• The 60 percent first-year rule. In the first 12 months, you can generally draw up to 60 percent of your available HECM amount (called the principal limit). The rest becomes available after the first year. This caps how much you can put into a down payment right away.
• Investment loans need real down payments. DSCR and other investor loans commonly require 20 to 25 percent down, plus cash reserves.
• The reverse mortgage balance grows. Interest and mortgage insurance are added to the balance each month unless you pay them. The plan only builds wealth if the rental’s growth outpaces that cost.
• Counseling is required. Every HECM borrower completes a session with an independent, HUD-approved counselor before applying. That is a good thing.
• Property charges still matter. You will be paying taxes and insurance on two properties now, not one.

Why this fits Hughesville and St. Mary’s County

I work from my office in Hughesville, a few minutes from the St. Mary’s County line, and this strategy fits our area for a specific reason.

St. Mary’s County is home to Naval Air Station Patuxent River. That means two things. First, a large number of military retirees and long-career civilians who bought homes years ago and now hold significant equity. Second, steady rental demand from the engineers, contractors, and service members who rotate through Pax River every year. Homes in Lexington Park, California, and Great Mills have long been popular with renters for that reason.

As a 20-year Navy veteran, I know many of these homeowners because I served alongside people just like them. They are disciplined, they plan ahead, and they want their assets to work as hard as they did.

Who is this strategy a good fit for?

In my experience, it tends to fit people who:

• Are 62 or older and plan to stay in their home for the long term
• Have substantial equity in their primary home, often owning it free and clear or close to it
• Have steady retirement income to cover their own living costs without the rental
• Have some experience with property, or are willing to hire a property manager
• Care about leaving assets to their family
• Are willing to sit down with a CPA before making a decision

It is usually not a fit for someone who needs the reverse mortgage to cover basic living expenses, or who is uncomfortable with a tenant, a vacancy, or a repair bill.

Why I bring your CPA to the table

A mortgage is a tool. How it affects your taxes, your Social Security, your Medicare premiums, and your estate is a separate question, and it deserves an expert answer. I am a loan officer, not a tax adviser.

So I ask to work alongside your CPA from the start. I bring the loan figures: what you qualify for, what it costs, and how the balance behaves over time. Your CPA brings the tax picture. You make the decision with both in hand.

Two weeks from now, I will walk through a detailed example of exactly that conversation with a couple in Hughesville.

The bottom line

A reverse mortgage does not have to be a last resort. For the right homeowner, it can be a planning tool that turns idle equity into a second, income-producing asset, while you stay in the home you love.

It is not right for everyone, and it only works with honest numbers. That is where I start every conversation.

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