HECM for Purchase

A reverse mortgage is a loan that lets homeowners age 62 or older tap into their home equity without selling their house or adding to their monthly expenses. While these loans are often used to cover basic living expenses and medical bills, it’s possible to use a “HECM for Purchase” reverse mortgage to buy a new home. Here’s a quick look at how a HECM for Purchase reverse mortgage works.

Key Takeaways

  • A reverse mortgage lets homeowners age 62 or older access their home equity to pay for things like basic living expenses and healthcare costs.
  • Instead of paying a lender each month, the lender pays you a certain amount based on the equity you’ve built in your home.
  • The entire loan balance becomes due if you sell the home, move away, fall behind on property taxes, or die.
  • A home equity conversion mortgage (HECM) is the Federal Housing Administration’s reverse mortgage program.
  • A HECM for Purchase is a reverse mortgage you can use to buy a new principal residence.

What Is a Reverse Mortgage?

After diligently paying down your mortgage for years (or decades), much of your net worth could be tied up in your home’s value.  This can be a tricky financial situation for older adults trying to pay for everyday living expenses, medical bills, home repairs, or anything else. 

However, homeowners age 62 or older can convert some of that home equity into cash using a reverse mortgage. Instead of making payments to a lender, the lender pays you based on the equity you’ve built in your home. Over the life of the loan, your debt increases while your home equity decreases. Eventually—when you sell, move, or die—the home’s sale proceeds are used to pay off the loan.

What Is a HECM?

A home equity conversion mortgage (HECM) is a reverse mortgage program insured by the Federal Housing Administration (FHA) and available through FHA-approved lenders.

The amount of money you can borrow through a reverse mortgage depends on the age of the youngest borrower, current interest rates, and the lesser of the home’s appraised value, HECM FHA mortgage limit ($970,800 in 2022), or sales price (applicable to HECM for Purchase loans only).

HECMs represent the bulk of reverse mortgages that lenders offer on homes valued up to $970,800—above that, you’ll need a jumbo or “proprietary” reverse mortgage.

What Is a HECM for Purchase?

A HECM for Purchase is a home equity conversion mortgage that you can use to buy a home. Like standard HECMs, the 62-and-up age restriction applies, and you don’t have to repay the loan until you sell the home, move out, pass away, or fail to meet the loan obligations (e.g., fall behind on your property taxes or home insurance).

The home you buy with proceeds from a HECM for Purchase must be your principal residence that you occupy within 60 days of the loan closing.

HECM for Purchase closing costs are higher than those for other reverse mortgage loans. They include an upfront mortgage insurance premium (MIP) equal to 2% of the property’s value, plus various lender and third-party costs like loan origination fees, title insurance, appraisal fees, credit report fees, and recording fees.

Unlike a regular HECM, you’ll also need cash on hand to cover a sizable down payment. Overall, your upfront costs could run between 29% and 63% of the home’s purchase price, depending on your age.

For HECM for Purchase loans, you need to pay the difference between the HECM loan proceeds and the home’s sales price, plus any closing costs.

The funds can come from your savings or the sale of your previous home or personal assets (e.g., stocks)—but you can’t use “gap financing” or other types of interim financing like a credit card cash advance or seller financing.   

Here are some examples showing the required minimum down payment for a HECM for Purchase loan, according to the National Reverse Mortgage Lenders Association:

HECM for Purchase Down Payment Examples
Purchase Price Down Payment—Age 62 Down Payment—Age 67 Down Payment—Age 71 Down Payment—Age 75
$350,000 $199,100 $187,700 $181,500 $172,650
$375,000 $222,150 $209,400 $202,250 $192,500
$425,000 $251,000 $236,500 $228,500 $217,500
$465,000 $273,600 $257,800 $249,000 $237,000

HECM for Purchase Eligible Properties

Any home you buy with a HECM for Purchase must meet the FHA property standards and flood requirements. Eligible property types include:

  • Single-family homes (one to four-unit properties)
  • Manufactured homes (built after June 1976)
  • Condominiums
  • Properties in planned unit developments (PUDs)
  • Townhouses
  • New construction homes with a certificate of occupancy (CO) issued by closing

Can I Use a Reverse Mortgage to Buy a Home?

Yes, you can use a HECM for Purchase reverse mortgage to buy a principal residence. To qualify, you must be at least 62 years old and have cash available to cover the down payment and closing costs.

What Is the Difference Between a HECM and a Reverse Mortgage?

A reverse mortgage is for homeowners age 62 and up who want to tap into their home equity without selling or moving. A home equity conversion mortgage (HECM) is the Federal Housing Administration’s (FHA) reverse mortgage program, representing the bulk of the reverse mortgage market. HECMs are the only reverse mortgages insured by the U.S. federal government.

What Are the Age Restrictions for Getting a Reverse Mortgage?

Homeowners must be at least 62 years old to qualify for a home equity conversion mortgage (HECM), the most common type of reverse mortgage loan. Still, some proprietary (“jumbo”) reverse mortgages are available to homeowners as young as age 55.

The Bottom Line

Reverse mortgages—including HECM for Purchase loans—involve substantial costs, making them a poor choice for many older adults. Some less expensive options include mortgage refinancing, home equity loans, or downsizing and pocketing the extra proceeds.  

Still, if you decide a reverse mortgage makes financial sense for you, shop around to compare costs. Mortgage insurance premiums are generally the same across lenders, but expenses like loan origination fees, closing costs, servicing fees, and interest rates tend to vary.

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