Can You Really Use a Reverse Mortgage to Buy a Home?
Yes, you absolutely can. In fact, more and more seniors across the country are discovering that a reverse mortgage can be a smart way to purchase the home they really want in retirement, without the burden of a monthly mortgage payment. The specific program that makes this possible is called a Home Equity Conversion Mortgage for Purchase, or HECM for Purchase. It’s insured by the Federal Housing Administration (FHA), and it was designed to help homeowners aged 62 and older buy a new primary residence using a reverse mortgage loan.
At first, the idea of using a reverse mortgage to buy a home sounds a little confusing. After all, most people think of reverse mortgages as something you take out on a home you already own. But the HECM for Purchase changes that. It allows you to combine your existing assets, such as proceeds from selling your current home, with a reverse mortgage to finance the purchase of a new one.
Let’s break down how it works, who it’s for, and why it might make sense for you.
How It Works
Here’s the basic idea. When you sell your current home, you can use part of the proceeds as a down payment on your new home. The reverse mortgage covers the rest. The best part? You don’t have to make monthly mortgage payments as long as you live in the home and continue to meet loan requirements, such as paying property taxes, homeowners insurance, and keeping the home maintained.
The home remains in your name, and you can live there for as long as you choose. The loan only comes due when you sell the home, move out permanently, or pass away. At that point, the home can be sold and the reverse mortgage is repaid from the sale proceeds, with any remaining equity going to you or your heirs.
This structure gives you the flexibility to live comfortably in a home that better suits your lifestyle or physical needs in retirement, without tying up all your money or taking on new monthly debt.
What Kind of Homes Qualify?
The HECM for Purchase program can be used to buy a variety of property types. These include:
- Single-family homes
- FHA-approved condominiums
- Certain manufactured homes that meet FHA standards
- Some townhomes
The key requirement is that the home must become your primary residence within 60 days of closing. You can’t use a reverse mortgage to buy a vacation home or an investment property. It’s meant for the place you’ll actually live in full-time.
How Much Do You Need for a Down Payment?
Unlike a traditional mortgage, where you might put down as little as 10 or 20 percent, a reverse mortgage for purchase usually requires a larger down payment. The exact amount depends on your age (and your spouse’s age, if applicable), current interest rates, and the home’s appraised value or purchase price, whichever is less.
In most cases, buyers are expected to contribute about 45% to 60% of the home’s purchase price. The older you are, the less you may need to put down because the loan is based partly on life expectancy.
That down payment usually comes from the sale of your previous home or other savings. After that, the reverse mortgage covers the remaining amount, and you won’t owe monthly payments.
Who Can Benefit the Most?
A reverse mortgage for purchase can make sense for a wide range of retirees, but it’s especially appealing in a few situations:
- Downsizing: Maybe you’re ready to move into a smaller, more manageable home but don’t want to pay cash for it.
- Relocating: You may want to move closer to family or to a warmer climate without depleting your savings.
- Upgrading: Some retirees want a newer home, a single-story floor plan, or a home that’s easier to maintain and energy-efficient.
In each case, the HECM for Purchase can help you move into the home you truly want while keeping your cash reserves intact.
The Key Benefits
- No Monthly Mortgage Payments
You don’t make principal or interest payments as long as you live in the home and keep up with property taxes, insurance, and maintenance. - Stay in Control
You own the home in your name. The lender doesn’t take ownership or control of it. - Preserve Your Savings
Because you’re not paying for the entire home in cash, you can keep more of your retirement funds available for other needs. - FHA Insurance Protection
The HECM for Purchase is FHA-insured, meaning you and your heirs are protected if the home’s value ever drops below the loan balance. - Flexibility for Heirs
When you pass away, your heirs can choose to sell the home and keep any remaining equity, or they can pay off the reverse mortgage (typically at 95% of the home’s appraised value) and keep the property.
Important Considerations
While the HECM for Purchase can be a powerful tool, it’s not the right fit for everyone. You’ll need to go through a HUD-approved counseling session before applying. This ensures you fully understand the costs, responsibilities, and long-term implications.
Closing costs and mortgage insurance premiums are higher than with a traditional loan, but for many retirees, the benefits outweigh the expenses. You should also keep in mind that you’ll still be responsible for ongoing housing costs such as taxes, insurance, HOA fees (if applicable), and maintenance.
If you fall behind on these obligations, the loan could become due. So it’s important to make sure those expenses comfortably fit your budget.
A Fresh Start in Retirement
For many older homeowners, retirement represents a new chapter, a time to simplify, reimagine, and settle into a home that truly fits the next stage of life. The HECM for Purchase offers a unique opportunity to do that without tying up your savings or taking on monthly mortgage debt.
Imagine selling your current home, moving into one that’s better suited to your lifestyle, and never having to make another mortgage payment again. That kind of financial freedom and peace of mind can make retirement feel more secure and enjoyable.
The key is to learn all the facts, run the numbers carefully, and work with a knowledgeable professional who understands how the program works. With the right guidance, a reverse mortgage for purchase can help you turn your next home into the place where your retirement dreams truly begin.
