Buying a Home With a Reverse Mortgage (HECM for Purchase)

Here's a question I hear a lot: "I'd love to move, but I don't want a mortgage payment at my age. Do I have to pay cash?"

No. That's exactly what the HECM for Purchase is for.

It's an FHA-insured reverse mortgage you use to buy a home. You bring a down payment, the reverse mortgage covers the rest, and you close once. After that, there are no required monthly mortgage payments on the new home. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms.

HUD made this possible starting in 2009. Before that, a 70-year-old who wanted to move had two choices: pay cash, or take a regular mortgage, move in, and then refinance into a reverse mortgage later, paying closing costs twice. Plenty of people still don't know there's a third choice.

The short version

• You buy the home with two pieces: your down payment and a reverse mortgage.
• One closing. No buying first and refinancing later.
• No required monthly mortgage payments on the new home. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms.
• The down payment is bigger than on a regular loan. How big depends on your age, interest rates, and the price.
• You have to live there. The home must become your primary residence within 60 days of closing.
• Sellers can help with costs now. Under HUD's 2024 rules, sellers and other interested parties can contribute up to 6 percent of the price toward the origination fee, other closing costs, prepaid items, and the upfront mortgage insurance.
• Jumbo purchase options exist for higher-priced homes, through proprietary programs.

Who it fits

The HECM for Purchase isn't for everyone. In my experience, it's a great fit for people who:

• Want to downsize and stop paying for space they don't use.
• Want one-level living, with no stairs to worry about later.
• Want to move closer to family, or to a different part of the country.
• Want to keep cash in the bank instead of putting every dollar from the sale into the new home.
• Have a lot of equity in their current home and want to move it into a better-fitting home without a monthly payment.
• Are buying in a 55+ community or a newer home built with aging in place in mind.

It usually isn't a fit if you might move again in a few years, if you'd struggle with property taxes and insurance on the new home, or if paying cash outright leaves you with plenty of money left over and you'd rather avoid the loan costs.

How it works

The basic math

The purchase price is covered by two pieces:

1. The reverse mortgage. HUD figures how much it can be from three things: the age of the youngest borrower or eligible non-borrowing spouse, the expected rate, and the lesser of the price, the appraised value, or the HECM lending limit. See Lending Limits.
2. Your down payment. You bring the difference, plus any closing costs not covered by the loan or by the seller.

That's it. There's no monthly mortgage payment to qualify for. What the lender does look at is whether you can keep up with property taxes, homeowners insurance, and upkeep on the new home.

Why the down payment is larger

On a regular mortgage, you might put down a small slice of the price and borrow the rest. A HECM for Purchase works the other way around, because you're not making payments and the balance grows over time. So the loan covers a smaller share and you cover a bigger one.

The good news: the older you are, and the lower rates are, the smaller your down payment generally gets. I won't type a percentage here, because it changes with rates and your age. The fastest way to see your number is to run an estimate, or just call me with your ages and price range.

Where the down payment can come from

Under HUD's current rules, your share can come from:

• Cash you already have.
• The sale of your current home or other assets.
• Gifts that meet FHA's gift rules, for example from family.
• Interested party contributions, within the limits below.
• Your own commission, if you're a licensed agent buying the home yourself. A family member who's the agent can also gift their commission.

It can't come from sweat equity, trade equity, rent credit, or a lender's premium pricing credit.

Seller credits are allowed now

This one changed in 2024, and a lot of older articles, including some of mine, are out of date.

For case numbers assigned on or after April 29, 2024, sellers, real estate agents, builders, and developers can contribute up to 6 percent of the sales price. It can go toward:

• Origination fees.
• Other closing costs.
• Prepaid items.
• The initial FHA mortgage insurance premium.

It can't go toward discount points or rate buydowns. The lender and the loan originator can't make these contributions. And the total has to be written into the purchase contract.

If you're buying from a builder or a motivated seller, this can make a real difference in how much cash you need to bring.

Requirements

For you

• Age. Every borrower must be at least 62. A younger spouse can be an eligible non-borrowing spouse. See the Non-Borrowing Spouse guide.
• Counseling. You complete HUD-approved counseling before you apply. A non-borrowing spouse attends too. See Reverse Mortgage Counseling.
• Financial assessment. The lender reviews your income, credit, and history of paying property charges. Most of the people I work with pass, because we take the time to explain any credit problems and extenuating circumstances the right way. See Reverse Mortgage Financial Assessment.
• Occupancy. Each borrower, and any eligible non-borrowing spouse, must move in within 60 days of closing.

For the home

• Eligible property types include single-family homes, 2 to 4 unit homes where you live in one unit, townhomes and PUDs, FHA-approved condos (or units with single-unit approval), and manufactured homes that meet HUD's standards.
• FHA property standards. The appraiser checks the home's condition. Required repairs are done before closing.
• New construction needs a certificate of occupancy before closing.

For the contract

• FHA Amendatory Clause and Real Estate Certification must be included.
• No rent-back to the seller after closing.
• Seller contributions must be written into the contract, within the 6 percent limit.

If you're working with a real estate agent, send them our HECM for Purchase guide for agents. It walks through the contract side step by step.

The appraisal

FHA reviews every HECM appraisal, and if the review flags the value, a second appraisal is required. When there are two, the lower value is used. See Is there a situation where I would need 2 appraisals?

Here's some good news: when a second appraisal is needed on one of our loans, ZYNG often covers the cost.

How long it takes

From accepted offer to closing, we can generally close in 30 days or less, but we always follow the contract. The two steps that take planning are counseling and the appraisal.

My best advice: do your counseling before you find the house. It's usually an hour by phone, and it takes a week or more off the transaction. If you're buying in California, there's also a 7-day wait after counseling before a full application can be taken. See Why do I need to wait 7 days after counseling?

Costs to expect

A HECM for Purchase has the same kinds of costs as any HECM:

• Origination fee, capped by HUD.
• FHA mortgage insurance, upfront and annual.
• Third-party costs like title, escrow, appraisal, and recording.
• Counseling, if the agency charges a fee.

You'll also have the normal costs of buying a home, like inspections and moving. Seller credits can cover many of the loan costs. See Reverse Mortgage Costs for current figures and how each one works.

Compare that with the alternative of buying with a regular mortgage and refinancing into a reverse mortgage later. That route means two sets of closing costs, and a monthly payment in between.

Jumbo purchase options for higher-priced homes

If you're buying a home well above the HECM lending limit, a proprietary (jumbo) reverse mortgage may cover more of the price and need a smaller down payment. Proprietary programs aren't insured by FHA, so they don't charge FHA mortgage insurance, and they set their own rules.

As a broker, we compare programs including Mutual of Omaha Secure Equity, Finance of America HomeSafe, Longbridge Platinum, Smartfi Choice, Nationwide Equities EquityPower, and MCM Holdings MCM Edge. Not every program offers a purchase option in every state. A few things worth knowing:

• Age. Some proprietary programs accept borrowers younger than 62 in some states. HomeSafe Standard, for example, is approved in all nine of our states, with a minimum age of 62 in Texas and 60 in Washington.
• Condos. In Florida, we can do condos that aren't FHA-approved with proprietary programs. That opens up a lot of buildings a HECM can't touch.
• Line of credit. In Washington, proprietary programs don't offer a line of credit. Plan on a lump sum there.

See Proprietary (Jumbo) Reverse Mortgages for the full comparison.

A note for California buyers

If you're 55 or older and selling a California home to buy another one in California, Prop 19 may let you transfer your old home's property tax base to the new one, if you buy within two years and file the claim. Paired with a HECM for Purchase, that can keep both your mortgage payment and your property tax bill in check. See California.

What you're still responsible for

There are no required monthly mortgage payments on a HECM for Purchase. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms. The loan becomes due when the last borrower or eligible non-borrowing spouse no longer lives in the home, or if the loan terms are not met.

Before you buy, look hard at the property taxes, insurance, and HOA dues on the new home. Those are your real monthly costs now. A cheaper home with lower insurance can be a smarter buy than a nicer one you'll strain to keep up.

Where people get tripped up

• Shopping before knowing the down payment. Get your number run first. It takes a few minutes.
• Leaving counseling to the last minute. It can hold up the whole deal.
• Writing a rent-back into the contract. It isn't allowed.
• Assuming the seller can't help. Since 2024, they can, within limits.
• Buying a condo that isn't approved. Check FHA approval early, or look at a proprietary program.
• Underestimating new property charges. A new purchase can reset your property tax bill.

Steps to buy with a HECM for Purchase

1. Call me with your ages, your price range, and roughly what you'll have from your current home.
2. Get your down payment estimate.
3. Complete HUD-approved counseling.
4. Shop for the home with an agent who knows the program.
5. Write the offer with the FHA clauses and any seller credit included.
6. Appraisal and underwriting.
7. Close, and move in within 60 days.

Common questions

Can I buy a home with a reverse mortgage?

Yes. The HECM for Purchase is built for exactly that. You bring a down payment, and the reverse mortgage covers the rest.

How much do I need for a down payment?

It depends on your age, interest rates, and the price. Older buyers and lower rates generally need less. Get your estimate or call me for your number.

Do I have to sell my current home first?

Not necessarily, but most people use the money from the sale for the down payment. If you have the cash, you can buy first and sell later. If you want to keep your old home, see If I use a reverse mortgage to purchase a new home, can I retain my existing home?

Can the seller pay my closing costs?

Yes, up to 6 percent of the price for loan and closing costs, for case numbers assigned on or after April 29, 2024. See What fees CAN the seller pay in a HECM for purchase transaction?

Can I buy a condo?

Yes, if it's FHA-approved or the unit has single-unit approval. Proprietary programs may accept condos that aren't approved.

Can I buy new construction?

Yes. The home needs a certificate of occupancy before closing.

Can I make payments if I want to?

Yes. You can generally make voluntary payments anytime without a prepayment penalty. You just don't have to.

Can I buy a vacation home or rental?

No. It has to be your primary residence.

Next step

Tell me the price range you're looking at, your ages, and about what you'll have from your current home. I'll show you what you'd need to bring to closing, HECM and jumbo side by side. Call us at 530-888-6000 or start your reverse mortgage review.

Related reading: Buy a Home, How a Reverse Mortgage Works, and Reverse Mortgage Pros and Cons.

Sources

• HUD Mortgagee Letter 2024-06, HECM for Purchase updates: hud.gov
• Federal Register notice on HECM for Purchase funding sources and interested party contributions, October 24, 2023: federalregister.gov
• 24 CFR 206.39, principal residence: law.cornell.edu
• 24 CFR Part 206, Home Equity Conversion Mortgage Insurance: ecfr.gov
• California State Board of Equalization, Introduction to Prop 19: boe.ca.gov
• HUD, FHA Reverse Mortgage for Seniors (HECM): hud.gov