Use a Reverse Mortgage to Purchase Your New Home

Created by Congress in 2011, a HECM for purchase is a loan option for people looking to “cash out" the equity in their property and move into a new home. This program allows borrowers to preserve a portion of the proceeds from the sale of their departing residence and still obtain a new residence without the pressures of a monthly mortgage payment. *

The new residence is paid for by combining your reverse mortgage proceeds and a down payment which is often from the proceeds of the sale of your departing residence.

*Borrowers must maintain the property and keep current property taxes, homeowner’s insurance, and HOA dues.

To qualify for a reverse mortgage purchase, you must be at least 62 years old and attend a consumer information session conducted by a HUD-approved HECM counselor. You’ll need to occupy the dwelling as your principal residence, have significant equity in the departing residence, and not be delinquent on any federal debt or liens.

Eligible property types include:

• Single-family homes (including manufactured homes that meet FHA requirements)
• Multi-unit dwellings (up to four-family, as long as the owner occupies one residence)
• Planned unit development (PUD)
• HUD-approved condominiums
• New construction homes, as long as a Certificate of Occupancy is issued before the HECM loan

Once a HECM reverse mortgage is in place, the homeowner must properly maintain the dwelling and continue paying property taxes, homeowner’s insurance, and HOA fees.

Interest on the mortgage accrues over time, and the loan must be repaid once the borrower passes away or permanently moves out of the property.

FHA insures fixed-rate and adjustable-rate reverse mortgages. Fixed-rate loans are distributed in a single lump sum with no future draws. Adjustable-rate reverse mortgages offer different payment options and allow for future draws.

The age of the youngest borrower determines the amount you can get with a reverse mortgage.

The amount you can get during the first 12-month disbursement period is subject to an initial disbursement limit.

You can’t take out a reverse mortgage to buy a secondary or vacation home, since this is only eligible on principal residences.

However, you can take out a reverse mortgage loan on your primary dwelling and use the proceeds to help pay for a secondary residence. As long as you continue occupying your primary residence the majority of the time, you won’t have to repay the reverse loan until you permanently move out of the property or pass away. You will still be responsible for any loan payments on your secondary home.

Compared to a traditional mortgage, where borrowers may be able to get into a new home with as little as nothing down, a HECM for purchase typically requires a sizeable down payment; usually close to about 50% of the home’s purchase price. This typically comes from the proceeds of the sale of your departing residence.

A reverse mortgage for purchase is an age-based loan, which means the older you are, the more loan proceeds you can receive and the lower your required down payment may be.