HECM for Purchase: Buying a New Home with a Reverse Mortgage
Key Takeaways
- You can buy a new home and get a reverse mortgage on the same day.
- It requires a significant cash down payment (roughly 45% to 60%).
- You avoid paying double closing costs compared to buying and refinancing later.
Most people assume a reverse mortgage is only for people who want to stay in their current home forever. But what if your current two-story house is too large, too hard to maintain, or too far away from your grandchildren?
The FHA created the HECM for Purchase program to solve exactly this problem. It allows seniors (aged 62+) to buy a new primary residence and obtain a reverse mortgage in a single, seamless transaction.
How HECM for Purchase Works
Traditionally, if a senior wanted to downsize using a reverse mortgage, they had to buy the new home with cash (or a traditional mortgage), establish residency, and then apply for a reverse mortgage months later. This meant paying real estate closing costs twice.
With a HECM for Purchase, the math works like this: 1. You find a new home you want to buy for $400,000. 2. Based on your age, the FHA determines they will lend you $180,000 via a reverse mortgage on that specific property. 3. You must bring the differenceā€”$220,000ā€”to the closing table in cash. (Usually, this cash comes from the sale of your old, larger home).
You move into the new $400,000 home. You have no monthly mortgage payments, and you get to keep the rest of the profit from the sale of your old home in your bank account to fund your retirement.
The Down Payment Requirement
The biggest hurdle with a HECM for Purchase is the down payment. Unlike first-time homebuyer programs that require 3% down, a HECM for Purchase usually requires a down payment of 45% to 60% of the purchase price, depending entirely on your age (older borrowers can put less down).
Furthermore, the FHA strictly regulates where this down payment comes from. It must be your own cash. You cannot take out a loan, use a credit card, or accept a gift from the home builder to cover the down payment.
Eligible Property Types
You cannot buy just any property with a HECM for Purchase. The home must serve as your primary residence within 60 days of closing. Eligible properties include: - Single-family homes - 2-to-4 unit multi-family homes (as long as you live in one unit) - FHA-approved condominiums - Manufactured homes that meet strict FHA foundation and age requirements
You cannot use this program to buy an investment property, a secondary vacation home, or a property you intend to flip.
The HECM for Purchase is a powerful tool for seniors who want to "right-size" their living situation without draining their entire life savings into a cash home purchase.