Reverse Mortgage for Purchase: Buy Your Next Home Without Required Monthly Mortgage Payments*
Use a reverse mortgage to finance part of your next primary residence while keeping more of your savings available for retirement.
A reverse mortgage isn't only for homeowners who want to access equity in a home they already own. Eligible homebuyers can also use a Reverse Mortgage for Purchase to buy their next primary residence.
Instead of paying 100% cash for the home or taking out a traditional mortgage with required monthly principal and interest payments, you contribute a portion of the purchase price from your own eligible funds and use a reverse mortgage to finance the remaining eligible amount.
The result? You can purchase and own your next home without required monthly principal and interest mortgage payments.*
What Is a Reverse Mortgage for Purchase?
A Reverse Mortgage for Purchase allows eligible older homebuyers to purchase a primary residence and obtain a reverse mortgage in a single transaction.
The FHA-insured version is known as a HECM for Purchase, or Home Equity Conversion Mortgage for Purchase.
- You provide a required monetary investment toward the purchase.
- The reverse mortgage provides the remaining eligible financing.
- Unlike a traditional mortgage, you are not required to make monthly principal and interest payments on the reverse mortgage* as long as you continue to meet the loan requirements.
- You retain ownership and title to the home.
How Does a Reverse Mortgage Purchase Work?
The concept is fairly simple. Here are the steps involved in using a reverse mortgage to buy your next home.
Choose Your New Home
Find a property you want to purchase and occupy as your principal residence.
Determine Your Required Investment
Your required funds toward the purchase are calculated based on factors including your age, purchase price, appraised value, current interest rates, and reverse mortgage program.
Provide Eligible Funds
Your required investment may come from eligible sources such as the sale of your current home, savings, investments, or other acceptable funds.
Reverse Mortgage Finances the Remaining Eligible Amount
The reverse mortgage provides the portion of the purchase price you are eligible to finance.
Move Into Your New Home
You own the property and do not have required monthly principal and interest mortgage payments on the reverse mortgage.*
Why Buy a Home With a Reverse Mortgage?
For many retirees, the choice isn't simply between paying cash and getting a traditional mortgage. A Reverse Mortgage for Purchase creates another option.
Instead of putting all—or most—of your available cash into your next home, you may be able to use a portion of your funds for the purchase and preserve more of your remaining assets for other needs.
Homebuyers may consider this strategy when they want to:
- Downsize into a smaller home
- Move closer to children or grandchildren
- Relocate to another city or state
- Move to a warmer climate
- Purchase a newer or more accessible home
- Reduce ongoing housing expenses
- Preserve more retirement savings
- Avoid required monthly principal and interest mortgage payments*
- Increase their home-buying power compared with paying all cash
- Keep additional assets available for future expenses
How Much Do I Need to Put Down?
This is one of the most common questions about a Reverse Mortgage for Purchase.
There is no single down-payment percentage that applies to every borrower. Your required investment depends on several factors, including:
- Your age
- Age of the youngest eligible borrower
- Purchase price
- Appraised value
- Current interest rates
- Reverse mortgage program
- Applicable lending limits
- Property type
- Other program requirements
Generally, a Reverse Mortgage for Purchase requires a substantial upfront investment from the buyer, but it may be considerably less than purchasing the property entirely with cash.
Example
Suppose you're considering purchasing a $600,000 home.
Instead of paying the entire $600,000 in cash, you may be able to contribute a portion of the purchase price and finance the remaining eligible amount with a reverse mortgage.
Your actual required investment must be calculated specifically for you.
Reverse Mortgage Purchase vs. Paying All Cash
Imagine you're selling your current home and have substantial cash available for your next purchase. You could put all of that money into the next home. Or you could potentially use a Reverse Mortgage for Purchase.
| Feature | Reverse Mortgage for Purchase | All-Cash Purchase |
|---|---|---|
| Own the home | Yes | Yes |
| Required monthly principal & interest mortgage payment | No* | No |
| Uses all purchase funds upfront | No | Yes |
| Keeps some assets available | Potentially | Less cash remains after purchase |
| Reverse mortgage balance | Yes | No mortgage |
| Interest accrues | Yes | No |
| Property taxes & insurance required | Yes | Yes |
A reverse mortgage purchase may allow you to preserve more liquid assets, but interest and applicable charges accrue on the reverse mortgage balance over time. Neither approach is automatically better. The right choice depends on your finances, goals, estate plans, and expected length of time in the home.
Reverse Mortgage Purchase vs. Traditional Mortgage
| Feature | Reverse Mortgage Purchase | Traditional Mortgage |
|---|---|---|
| Monthly principal & interest payment | Not required* | Required |
| Buyer contributes funds at closing | Yes - substantial investment | Typically down payment |
| Minimum age requirement | Yes | Generally no |
| Home ownership | You retain title | You retain title |
| Interest | Accrues to loan balance | Typically paid monthly |
| Loan balance | Generally increases over time | Generally decreases with payments |
| Primary residence required | Yes | Depends on loan program |
| Property taxes & insurance | Borrower responsibility | Borrower responsibility |
| Repayment | Generally upon a maturity event | According to monthly loan schedule |
Could a Reverse Mortgage Increase Your Home-Buying Power?
Potentially.
Suppose you plan to spend $400,000 cash on your next home. Rather than purchasing a $400,000 property entirely with cash, a Reverse Mortgage for Purchase may allow you to combine your available funds with reverse mortgage financing and potentially consider a higher-priced home.
That could give you additional options when looking for:
- A better location
- A newer property
- A one-story home
- A home with accessibility features
- A property closer to family
- A home in a retirement community
- A property requiring less maintenance
This doesn't mean you should automatically purchase a more expensive home.
It means a reverse mortgage may give you another way to structure the purchase.
Who May Qualify?
For an FHA-insured HECM for Purchase, the youngest borrower generally must be at least 62 years old. Borrowers must also meet applicable FHA and lender requirements.
These generally include:
- Purchasing an eligible property
- Occupying the property as a principal residence
- Providing the required monetary investment from eligible sources
- Meeting applicable financial assessment requirements
- Completing HUD-approved reverse mortgage counseling
- Paying property taxes and homeowners insurance
- Maintaining the property
- Meeting applicable FHA and lender requirements
Other proprietary reverse mortgage purchase programs may have different requirements.
What Types of Homes Can You Purchase?
Eligible property types depend on the reverse mortgage program. Depending on applicable requirements, eligible properties may include certain:
- Single-family homes
- FHA-approved condominium units
- Certain condominium units meeting applicable requirements
- Two-to-four-unit properties when borrower occupancy requirements are satisfied
- Manufactured homes that meet applicable program requirements
The property must satisfy the requirements of the specific reverse mortgage program being used. MyLoanDesk can review a property before you make an offer to determine whether it appears to meet applicable program requirements.
Where Can the Buyer's Funds Come From?
Your required investment must come from acceptable sources under the applicable reverse mortgage program.
Depending on program requirements, eligible funds may include:
- Proceeds from the sale of your current home
- Checking or savings accounts
- Investment or retirement assets
- Other verified acceptable funds
Certain restrictions may apply to borrowed funds and other sources.
Your mortgage specialist should verify the source of funds before you enter into a purchase transaction.
Do You Still Own the Home?
Yes.
Using a reverse mortgage does not mean giving ownership of your home to the lender.
You purchase the property and retain title and ownership, just as you would with another mortgage. The reverse mortgage is a lien against the property.
You remain responsible for complying with the loan requirements, including paying property taxes, homeowners insurance, applicable HOA charges, and maintaining the home.
Frequently Asked Questions About Reverse Mortgage Purchase
Can I really buy a home with a reverse mortgage?
Yes. Eligible older homebuyers can use a reverse mortgage to finance part of the purchase of a qualifying primary residence. The FHA-insured program is commonly known as HECM for Purchase.
Do I have to make mortgage payments?
There are no required monthly principal and interest payments on the reverse mortgage* while applicable loan requirements are met. You remain responsible for property taxes, homeowners insurance, applicable HOA charges, property maintenance, and other obligations under the loan.
How old do I have to be?
For an FHA-insured HECM for Purchase, the youngest borrower generally must be at least 62 years old. Certain proprietary reverse mortgage programs may have different age requirements.
How much money do I have to put down?
There is no universal percentage. Your required investment depends on factors such as your age, the home's purchase price and appraised value, current interest rates, and the reverse mortgage program. MyLoanDesk can calculate an estimate based on your actual situation.
Can I use money from selling my current home?
Yes, proceeds from the sale of your existing home may generally be an eligible source for your required investment, subject to applicable documentation and program requirements.
Can I buy a second home or vacation home?
A HECM for Purchase is intended for a home that will be your principal residence. It is not designed to finance a traditional second home or investment property. If you're relocating to a vacation or retirement destination, the new property may potentially qualify if it will actually become your principal residence and all other program requirements are satisfied.
Do I still own the home?
Yes. You retain title and ownership of your home. The reverse mortgage lender does not become the owner of your property.
Can I sell the home later?
Yes. You can sell the property. The reverse mortgage balance is generally repaid from the sale proceeds, with remaining equity belonging to you after satisfying the loan and applicable transaction expenses.
What happens to the home when I pass away?
Your heirs generally have options under the terms of the reverse mortgage. They may choose to repay the loan and retain the property or sell the property and use the proceeds to satisfy the reverse mortgage. Specific requirements and timelines depend on the loan program and circumstances.
Can I pay off the reverse mortgage early?
Generally, yes. Reverse mortgages typically do not require you to keep the loan for a specific number of years, and applicable loan documents govern repayment. Your mortgage specialist can review the specific terms of the program you're considering.
Does the loan balance increase over time?
Generally, yes. Because monthly principal and interest payments are not required, interest and applicable financed charges accrue to the reverse mortgage balance. As the balance increases, the equity remaining in the property may decrease.
Thinking About Moving in Retirement?
Your next home doesn't necessarily have to be an all-cash purchase. And it doesn't necessarily have to come with another traditional monthly mortgage payment.
A Reverse Mortgage for Purchase may provide a third option.
You may be able to combine a portion of your available assets with reverse mortgage financing to purchase the home you want while preserving more of your remaining funds.
That could mean moving:
- Closer to your family.
- Into a smaller home.
- Into a more accessible home.
- To another state.
- Into a home better suited for retirement.
The important part is determining whether the numbers make sense for your situation.
Find Out How Much Home You Could Purchase
If you're considering buying your next home, MyLoanDesk can prepare a personalized Reverse Mortgage for Purchase analysis.
We'll help you determine:
- • How much you may qualify to finance.
- • Approximately how much you may need to bring to closing.
- • What purchase price may fit your available funds.
- • Whether HECM or another available reverse mortgage program may work for you.
- • How a reverse mortgage purchase compares with paying cash or using traditional financing.
No obligation. Review the numbers before deciding.
Important Disclosures
*No required monthly principal and interest mortgage payments are required on a reverse mortgage while applicable loan requirements are met. A reverse mortgage is not a payment-free loan.
Borrowers remain responsible for property taxes, homeowners insurance, applicable HOA charges, property maintenance, and compliance with all applicable loan terms. Failure to meet these obligations may cause the loan to become due and payable.
Interest and applicable financed charges accrue to the reverse mortgage balance over time, generally increasing the amount owed and reducing remaining home equity.
HECM borrowers must meet applicable FHA requirements and complete HUD-approved reverse mortgage counseling.
A HECM for Purchase must be used to purchase an eligible property that will serve as the borrower's principal residence. Property and occupancy requirements apply.
Reverse mortgage programs, interest rates, required borrower investment, available proceeds, costs, property requirements, and eligibility guidelines are subject to change. Not all borrowers or properties will qualify.
MyLoanDesk does not provide tax, legal, investment, or financial-planning advice. Consumers should consult appropriate professionals regarding their individual circumstances.