Key Takeaways
- The HECM for Purchase allows you to buy a new home and get a reverse mortgage in a single transaction.
- You must bring a significant down payment (usually 40% to 60%) to the closing table.
- It is the perfect tool for downsizing to a more accessible home without taking on a new mortgage payment.
\n\nFor decades, if a senior wanted to buy a new house using a reverse mortgage, they had to do it in two agonizingly expensive steps: First, buy the new house with cash or a traditional mortgage. Second, wait several months and pay thousands of dollars in closing costs to refinance that new house into a reverse mortgage.
To fix this, HUD introduced the HECM for Purchase (H4P) program in 2009.
This program allows you to buy a new home and secure a reverse mortgage in a single, streamlined transaction.
How HECM for Purchase Works
Let's say you are 70 years old. You just sold your massive, two-story family home for $400,000. You want to buy a single-story ranch home closer to your grandchildren that costs $300,000.
If you pay $300,000 cash for the new house, you only have $100,000 left over for retirement.
Instead, you use the HECM for Purchase program. - The lender determines that based on your age (70), they will lend you roughly 50% of the new home's value (which is $150,000). - You are required to bring the other 50% ($150,000) as a down payment from the sale of your old house. - You close on the new house.
The Result: You live in the $300,000 house with no monthly mortgage payments. Furthermore, because you only had to put down $150,000, you get to keep $250,000 in cash from the sale of your old house to fund your retirement lifestyle.
The Down Payment Requirement
The biggest hurdle for the HECM for Purchase is the massive down payment. Unlike a traditional FHA loan where you might put down 3%, a HECM for Purchase requires a down payment of 40% to 60% of the purchase price, depending on your age.
Crucially, HUD has strict rules on where that down payment comes from: - It must be your own money (from savings, retirement accounts, or the sale of your previous home). - It cannot be borrowed money (you cannot use a credit card or a bridge loan to fund the down payment).
Why Seniors Love It
The H4P program is the ultimate tool for "rightsizing" your retirement. It allows you to move into a home that is physically safer (no stairs, wider doors, better climate), while simultaneously preserving a massive chunk of your cash reserves, all without ever taking on a new monthly mortgage payment.\n