Updated August 13, 2026. Quick answer: the “95 percent rule” is worth nothing to you until the loan balance passes 95 percent of a fresh appraised value. Below that line you pay the balance; above it you pay the ceiling and federal mortgage insurance absorbs the rest. Enter your two numbers and this works out which of sell, keep or hand back the arithmetic actually selects. What the rules say, and what heirs owe, is at what heirs actually owe.
The whole decision runs on two numbers
Once a reverse mortgage becomes due and payable, the regulation gives the borrower’s heirs a short list of things they may do. Two of them have prices. The first is paying the loan off:
“Pay the outstanding loan balance, including any accrued interest, MIP, and mortgagee advances in full;” — 24 CFR § 206.125(a)(2)(i)
Note what is inside that balance. It is not the cash the borrower received. It is that cash plus every month of accrued interest, plus the mortgage insurance premium, plus anything the servicer advanced for taxes or insurance. On a loan that ran fifteen years, the balance is a multiple of the money that was drawn.
The second priced route is a sale, and this is where the famous number lives:
“Sell the property for an amount not to be less than the amount determined by the Commissioner through notice, which shall not exceed 95 percent of the appraised value as determined under § 206.125(b), with the net proceeds of the sale to be applied towards the outstanding loan balance. Closing costs shall not exceed the greater of: 11 percent of the sales price; or a fixed dollar amount as determined by the Commissioner through Federal Register notice. For the purposes of this section, sell includes the transfer of title by operation of law;” — 24 CFR § 206.125(a)(2)(ii)
It is a ceiling on HUD, not a discount for you
Read the sentence again: the Commissioner determines an amount, and that amount shall not exceed 95 percent of the appraised value. It is an upper bound on what a sale can be required to clear. It is not an entitlement to buy the house at a five percent discount.
The practical consequence is arithmetic. If the balance is below 95 percent of the appraised value, the ceiling is above the balance and does nothing at all — you pay the balance. The rule only starts paying you at the moment the loan is underwater by more than five percent. On an appraised value of $400,000 that crossover sits at exactly $380,000.
| Loan balance | Cost to keep the house | What the 95% rule saves | Estate’s net if sold | What the arithmetic selects |
|---|---|---|---|---|
| $250,000 | $250,000 | $0 | $118,000 | sell |
| $340,000 | $340,000 | $0 | $28,000 | sell |
| $380,000 | $380,000 | $0 | $0 | deed in lieu |
| $420,000 | $380,000 | $40,000 | $0 | keep at the 95 percent ceiling |
| $500,000 | $380,000 | $120,000 | $0 | keep at the 95 percent ceiling |
Appraised value $400,000, selling costs 8.0%. The saving column is zero on the first three rows and it is zero for the same reason each time: the balance had not passed $380,000. Published explanations of this rule almost always describe it as what heirs pay. On a house with equity in it, heirs pay the balance and the rule is never reached.
The appraised value is a new appraisal, not the old one
The value the ceiling runs off is not the value at closing and it is not a listing estimate:
“The mortgagee shall have the property appraised by an appraiser on the FHA roster, or other appraiser acceptable to, and identified by, the Commissioner through Federal Register notice, no later than 30 days after receipt of the request by an applicable party in connection with a potential property sale.” — 24 CFR § 206.125(b)
That has a consequence worth knowing before anyone argues about price: the number that decides your ceiling is produced after the request, by an appraiser from a federal roster. It is the one input in this calculation that an heir can neither choose nor set.
Selling before it is due and payable is a different rule
A living borrower, or an authorised representative selling on their behalf while the loan is still current, is not under the 95 percent rule at all:
“Sale by borrower or other permissible party. Where the HECM is not due and payable, the borrower or an authorized representative of the borrower may sell the property for at least the lesser of the outstanding loan balance or the appraised value. Where the HECM is due and payable at the time the contract for sale is executed, the borrower or other party with legal right to dispose of the property may sell the property in accordance with the amount established by § 206.125(a)(2)(ii).” — 24 CFR § 206.125(c)
The floor there is the lesser of the balance or the appraised value, which is a materially better position than the 95 percent ceiling. Timing changes the arithmetic, so a family selling a home while the borrower is alive and a family selling after a death are answering different questions.
If it is underwater, the shortfall is not yours
The calculator floors the estate’s net at zero, and it does that on the regulation’s authority rather than as a convenience:
“The borrower shall have no personal liability for payment of the outstanding loan balance. The mortgagee shall enforce the debt only through sale of the property. The mortgagee shall not be permitted to obtain a deficiency judgment against the borrower if the mortgage is foreclosed.” — 24 CFR § 206.27(b)(8)
Three separate promises sit in those three sentences: no personal liability, enforcement only against the house, and no deficiency judgment after a foreclosure. A family being told that a parent’s reverse mortgage has left them owing money is being told something the regulation contradicts in terms.
The clock, and one thing you were probably told that is not in the rule
The deadlines are short and they are the reason this arithmetic has to be done quickly rather than well:
“After notifying and receiving approval of the Commissioner when needed, the mortgagee shall notify the borrower, Eligible Non-Borrowing Spouse, borrower’s estate, and borrower’s heir(s), as applicable, within 30 days of the later of notifying the Commissioner or receiving approval, if needed, that the mortgage is due and payable. The mortgagee shall give the applicable party 30 days from the date of notice to engage in the following actions:” — 24 CFR § 206.125(a)(2)
Thirty days from the date of that notice to choose. Then two outer limits:
“The mortgagee shall commence foreclosure of the mortgage within six months of the due date defined in § 206.129(d)(1), or within such additional time as may be approved by the Commissioner.” — 24 CFR § 206.125(d)(1)
“(i) In order to avoid delays and additional expense as a result of instituting and completing a foreclosure action, the mortgagee shall accept a deed in lieu of foreclosure from the borrower or other party with legal right to dispose of the property provided it is filed for recording within 9 months of the due date and the mortgagee is able to obtain good and marketable title.” — 24 CFR § 206.125(f)(1)(i)
What is not there. The widely repeated advice that heirs get “90-day extensions, up to twelve months” does not appear in the current codified text. What the text gives is six months to commencement of foreclosure, extendable only by an approval the text quoted above declines to quantify — that is, at the Commissioner’s discretion rather than on a schedule you can plan around. Do not budget your family’s decision on a twelve-month figure the regulation does not contain.
What this page does not do
It does not price probate, and whether one is needed is a separate question answered on the page this one sits under. It does not model the servicer’s actual closing-cost charge; the regulation caps what may be charged at the greater of 11 percent of the sales price or a figure HUD sets by notice, and the calculator’s selling-cost input is your own estimate of a real sale, defaulted to 8.0%. It does not cover the case where a surviving spouse who was not a borrower is still living in the house, which runs on an entirely different rule set at the non-borrowing spouse rule. And it assumes the loan is due and payable; if it is not, see the section above.
Sources
Every figure on this page is computed from the text quoted below. Each row links the document it was read from.
| What it establishes | Source |
|---|---|
| The first of the listed actions is paying the balance in full — and the balance includes accrued interest, MIP and mortgagee advances, not just the cash the borrower drew. | 24 CFR § 206.125(a)(2)(i) |
| The 95 percent figure is a CEILING on the amount the Commissioner may require a sale to clear — it is not a discount an heir is entitled to demand. | 24 CFR § 206.125(a)(2)(ii) |
| The appraised value that the 95 percent ceiling runs off is a fresh appraisal by an FHA-roster appraiser, ordered within 30 days of the request — not the value at closing and not a market estimate. | 24 CFR § 206.125(b) |
| Before the loan is due and payable the sale floor is different — the LESSER of the balance or the appraised value — and the 95 percent rule only takes over once the loan is due and payable at the time the sale contract is signed. | 24 CFR § 206.125(c) |
| The loan is non-recourse: no personal liability, enforcement only through sale of the property, and no deficiency judgment on foreclosure. | 24 CFR § 206.27(b)(8) |
| The clock starts with the mortgagee’s due-and-payable notice, and the applicable party — expressly including the borrower’s heirs — gets 30 days from the date of that notice to choose an action. | 24 CFR § 206.125(a)(2) |
| Foreclosure must be commenced within six months of the due date, extendable only by Commissioner approval — the codified text sets no 90-day-extension schedule. | 24 CFR § 206.125(d)(1) |
| A deed in lieu of foreclosure must be FILED FOR RECORDING within nine months of the due date, and the mortgagee must be able to obtain good and marketable title. | 24 CFR § 206.125(f)(1)(i) |
General consumer information, not financial, tax or legal advice. Rules are as published by the cited authority on 2026-08-13 and change without notice; your own circumstances govern. Computed figures are illustrations on the assumptions stated on this page, not quotes, offers or predictions. Nothing is sold here and no product or provider is recommended.