Buy a New Home With No Monthly Mortgage Payment.
The HECM for Purchase lets homeowners 62 and older buy a new home using reverse mortgage proceeds — one transaction, one set of closing costs, no monthly payment required.
A reverse mortgage you can use to buy — not just stay.
Most people know a reverse mortgage as a way to tap equity in the home you already own. But the HECM for Purchase goes one step further — it lets seniors 62 and older buy a new home with HECM loan proceeds, combining the purchase and the reverse mortgage into a single transaction.
The primary benefit is that the transaction only involves one set of closing costs, versus buying a home and obtaining a reverse mortgage separately, which would incur two complete sets of closing costs. Created by the Housing and Economic Recovery Act of 2008, this program went live on January 1, 2009.
All standard HECM requirements apply, plus some additional guidelines specific to purchase transactions. Jenn can walk you through exactly what to expect.
What you need to know upfront.
Can purchase existing 1 to 4 unit properties that will serve as the borrower's principal residence.
Once the HECM purchase is complete, no additional liens are permitted. The lender is in 1st position, HUD holds a silent 2nd.
A monetary investment at closing is required from an allowable funding source to cover the difference between the HECM principal limit and the purchase price.
The borrower must occupy the property within 60 days of closing.
Newly constructed properties must have a certificate of occupancy issued by the time the loan is insured by FHA.
There is no three-day right of rescission for HECM for Purchase transactions — all initial advances may be disbursed on the day of closing.
Get a no-obligation Reverse Mortgage evaluation and quote today.
Which properties are eligible?
HECM for Purchase follows the same property eligibility as standard HECM loans, with a few exceptions.
Eligible Properties
- Single-family homes and detached residences
- 1 to 4 unit properties (borrower must occupy one unit)
- FHA-approved condominiums
- HUD-approved manufactured homes (built after June 15, 1976, in certain circumstances)
- Newly constructed homes with certificate of occupancy
Ineligible Properties
- Cooperative units
- Manufactured homes in certain circumstances
- Bed and breakfast properties and boarding houses
- Properties with resale within 90 days of last sale
- Properties with existing liens at time of closing
Inspections, offers, and repairs.
HUD strongly encourages all HECM for Purchase buyers to follow these steps before closing.
Home Inspection
- Evaluates physical condition including structure, construction, and mechanical systems
- Identifies items that need to be repaired or replaced before closing
- Estimates the remaining useful life of major systems and finishes
- Buyer should be present to ask questions about condition and maintenance
Required Repairs
- Any health, safety, or structural integrity issues must be resolved
- Repairs must be completed prior to closing by the seller
- Should be included in the purchase agreement
- Buyer cannot put any money into repairs before they own the home
Writing an Offer
- Offer must state it is contingent on a satisfactory inspection by a qualified inspector
- Consider having an attorney review — increases costs but may be worth it
- The buyer may cancel prior to closing, but this could affect the earnest money deposit
Closing Costs
- Standard HECM closing costs apply
- Plus recordation fees and transfer taxes
- These vary by state — Jenn can give you a full breakdown for California
The monetary investment requirement.
At closing, you must provide a monetary investment to cover the difference between the HECM principal limit and the sales price, plus any loan-related fees not otherwise financed. Here is what is and isn't allowed.
Allowable Funding Sources
- Your own money or money from the sale of personal assets
- Withdrawals from savings or retirement accounts
- Seller or builder credits up to 6% of the sales price
- Proceeds from the sale of the borrower's previous home
Ineligible Funding Sources
- Closing cost assistance programs
- Credit card advances
- Secured or unsecured loans from other assets
- Bridge loans or any other gap financing
Lenders are required to verify the source of all funds before closing. If there is a large increase in an account or the account was recently opened, the lender must obtain a credible explanation and documentation. Failure to provide required documentation may result in a delay or rejection of endorsement.
A few more things about HECM for Purchase.
Seller contributions are allowed up to 6% of the sales price — this can help offset some of your out-of-pocket closing costs.
HUD-approved counseling is required. Your counselor will cover all topics specific to the HECM for Purchase program in addition to standard HECM guidance.
To avoid property flipping issues, FHA requires that the seller be the current owner of record and that the property not be resold within 90 days of the last sale. Resales between 91 and 180 days where the new price exceeds 100% of the previous price require additional documentation.
Existing HECM borrowers entering a HECM for Purchase transaction are ineligible for a reduction in the upfront MIP and the transaction must be entered as a new HECM in FHA Connection.
If you suspect you have been targeted by a property flipping scam, contact HUD's Inspector General Hotline toll-free at 1-800-347-3735.
Thinking about buying a new home?
Let Jenn show you exactly how much purchasing power a HECM for Purchase could give you — no obligation, no pressure.