Key Takeaways
- A HECM for purchase allows homeowners 62+ to buy a new principal residence using a reverse mortgage loan.
- Borrowers must meet the loan requirements, including living in the home, paying property taxes, insurance, and covering home maintenance. Failing to meet the terms of the loan will trigger the loan to be repaid.
- The loan is insured by the Federal Housing Administration (FHA) and comes with eligibility, counseling, and occupancy requirements.
More older adults are buying homes than ever before. Data from the National Association of Realtors (NAR) found 42% of recent homebuyers were over the age of 60. Buying a new home later in life can feel both exciting and complex, especially when balancing affordability and long-term financial security.
With a Home Equity Conversion Mortgage (HECM) for purchase, homeowners sell their current property and use part of the proceeds as a down payment on their next home. The HECM reverse mortgage covers the rest of the purchase price, giving homeowners the ability to live in their new home without required monthly mortgage payments.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
What is a HECM for purchase?
A Home Equity Conversion Mortgage (HECM) for purchase, sometimes referred to informally as a purchase reverse mortgage, is a specialized type of reverse mortgage loan that allows eligible borrowers to buy a new principal residence using the proceeds of a reverse mortgage—rather than paying for the entire purchase price upfront or taking on new monthly mortgage payments.
To retain ownership, borrowers must be at least 62 years of age, live in the home as their primary residence, and remain responsible for property taxes, homeowners’ insurance, HOA dues, and home maintenance to keep the loan in good standing. The property must also meet Federal Housing Administration (FHA) guidelines. Failing to meet these obligations can cause the loan to become due.
A HECM for purchase may be an appealing solution for those who want to downsize, move closer to family, or buy a home better suited to their long-term comfort—without sacrificing financial stability or flexibility.
How does HECM for purchase work?
A HECM for purchase works much like a standard HECM loan, with one important difference: instead of pulling home equity from your current property, you’re using the reverse mortgage to help fund the purchase price of a new principal residence.
Here is the general process:
- Connect with a reverse mortgage for purchase lender or find a home you are interested in purchasing.
- Sell your current home or use other eligible assets to fund the required down payment.
- Apply for a HECM for purchase through a lender approved by the Federal Housing Administration (FHA).
- The HECM then covers the remaining balance of the home’s purchase price, allowing you to complete the process in a single transaction.
- You move into your new home and, as long as you meet ongoing loan obligations, you can remain there without required monthly mortgage payments. Those include living in the home as a primary residence, paying property taxes, homeowners’ insurance, HOA fees, and general home maintenance. Failing to meet these obligations could cause the loan to become due.
Here’s an example of how the process might work:
Imagine Sarah, age 72, wants to buy a $400,000 condo closer to her daughter. She sells her previous home and uses $200,000 from the proceeds as a down payment on a new home. She applies for a HECM for purchase loan, completes the required HUD-counseling session and is approved by a lender.
Her HECM for purchase loan covers the remaining $200,000 purchase price of the new home. Because the loan doesn’t require monthly mortgage payments as long as she meets the loan requirements, Sarah can move into her new home with no ongoing principal or interest payments and keep the remaining cash from her previous home’s sale available for future needs.
To retain home ownership and avoid default, Sarah must comply with the loan terms, including living in the home as her primary residence, continuing to pay property taxes, HOAs, homeowners’ insurance, and maintaining the home.
Over time, the loan balance grows as interest and fees are added, but repayment isn’t required until Sarah moves, sells the home, passes away, or fails to comply with the loan terms. At that point, the sale of the property is used to pay off the loan balance, and any remaining equity belongs to Sarah or her heirs.
This type of purchase reverse mortgage gives homeowners the ability to relocate or downsize without depleting other retirement funds—and without taking on a new traditional mortgage.
The reverse mortgage borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid.
Who is potentially eligible for HECM for purchase?
Eligibility for a Home Equity Conversion Mortgage (HECM) for purchase is similar to a standard HECM reverse mortgage loan, with a few additional requirements tied to the home purchase itself. To be eligible for a HECM for purchase, borrowers must, at minimum, meet the following key criteria:
- Age requirement: At least one borrower must be 62 or older.
- Property type: The new home must meet FHA property standards and be used as your principal residence. Eligible properties typically include single-family homes, FHA-approved condominiums, and certain manufactured homes.
- Down payment: Borrowers must contribute a down payment, usually between 45% and 65% of the home’s purchase price, depending on age, current interest rates, and the appraised value of the property. The older the borrower, the lower the required down payment percentage.
- Counseling requirement: Before applying, you must complete a session with a HUD-approved reverse mortgage counselor. This ensures you understand the costs, responsibilities, and long-term implications of the loan.
- Financial assessment: Lenders will review your credit history and verify that you can continue to pay property taxes, homeowners’ insurance, and ongoing maintenance expenses.
- Occupancy requirement: You must live in the property as your principal residence within 60 days of closing and continue to occupy it as long as the loan is active.
Borrowers do not have to be first-time homebuyers, and owning a home in the past does not affect eligibility. However, funds for the down payment must come from acceptable sources—such as the sale of a previous home, personal savings, or a financial gift from a family member—and not from borrowed funds or other loans.
HECM vs traditional mortgage
When exploring ways to buy a new home, it’s important to understand how a HECM for purchase compares with a traditional mortgage. While both are types of home financing, their structure, repayment terms, and long-term impact are very different.
A HECM for purchase is designed for homeowners 62 or older who want to buy a new principal residence without taking on new monthly mortgage payments. Borrowers must live in the home, continue to pay property taxes, homeowners’ insurance, and home maintenance costs. A traditional mortgage, by contrast, requires regular monthly payments toward principal and interest until the loan is paid off.
This table breaks down the main differences between the two types of loans:
| Feature | HECM for Purchase | Traditional Mortgage |
| Monthly Mortgage Payments | No required monthly mortgage payments; borrower must live in the home as a principle residence, pay property taxes, insurance, and maintenance | Requires monthly payments toward principal and interest |
| Down Payment | Typically 45%–65% of the purchase price, based on age, interest rate, and home value | Usually 5%–20% of the purchase price, depending on credit and loan type |
| Loan Balance | Increases over time as interest and fees are added to the principal balance | Decreases over time as payments are made |
| Age Requirement | Borrower must be 62 or older | No direct requirements |
| Repayment Timing | Due when borrower moves, sells, passes away, or fails to comply with loan terms | Repaid gradually through regular payments |
| FHA Involvement | Insured by the Federal Housing Administration (FHA) | May or may not be FHA-insured |
While a traditional mortgage may suit younger borrowers or those with steady income, a HECM for Purchase offers an alternative for homeowners 62 and older who want to buy a home that better fits their needs—without taking on required monthly mortgage payments.
The reverse mortgage borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid.
How to determine if HECM for purchase is right for you
A HECM for purchase can be a flexible, practical way to buy a new home later in life—but it’s not right for every situation. Before deciding, it is important to evaluate whether this type of reverse mortgage loan aligns with your financial goals, lifestyle, and long-term plans. Here are a few questions to ask yourself:
Do you meet eligibility requirements?
You must be 62 or older, live in the property as your principal residence, and meet the Federal Housing Administration (FHA) guidelines for property type and condition. The home must be move-in ready at the time of purchase, and you’ll need to complete a HUD-approved counseling session to confirm your understanding of the loan’s structure and obligations.
Can you afford upfront and ongoing costs?
A HECM for purchase still comes with closing costs, accruing interest, and ongoing financial responsibilities. These include property taxes, homeowners’ insurance, and general maintenance, which are required to keep the loan in good standing.
Typical costs may include:
- Origination fee: Usually 2% of the first $200,000 of the home’s value, plus 1% of any amount above that (capped at $6,000 by HUD rules).
- Mortgage insurance premium: Generally, the lesser of 2% of the home’s purchase price upfront, appraised value, or FHA limit, plus an annual 0.5% on the remaining loan balance.
- Counseling: You’ll need to pay for the HUD-required counseling session to discuss eligibility, financial implications, alternatives, and what makes the loan due and payable.
- Third-party closing costs: Appraisal, title, and recording fees must be paid out of pocket and generally total $2,000–$4,000, depending on location.
While most of these costs can be financed into the loan, they do increase the initial loan balance. Financing closing costs reduces the amount of proceeds available to you and increases the loan balance, which grows over time with interest.
The reverse mortgage borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid.
How long do you plan to stay in the home?
A HECM for purchase is generally best for homeowners planning to stay in their new home long-term. Because of the upfront costs and structure of the loan, staying in the home longer helps spread the fee over a longer time period.
If you expect to move again within a few years, the cost of closing and setting up the loan may outweigh the advantages. But if you plan to age in place, live closer to family, or settle into a more comfortable or accessible home, a purchase reverse mortgage can provide lasting flexibility and stability.
Although no monthly mortgage payments are required, to retain ownership and avoid defaulting on the loan, you still need to pay your property taxes, insurance, upkeep in a timely manner and comply with loan terms for as long as you own your home.
Step-by-step application process for HECM for purchase
Applying for a HECM for purchase has additional steps to ensure borrowers fully understand their responsibilities and eligibility. The process typically takes 30 to 60 days.
Here’s how the process works:
1. Meet with a reverse mortgage specialist
Your first step is to connect with a lender or loan officer experienced in reverse mortgage transactions. They’ll review your financial goals, see if you meet the basic Federal Housing Administration (FHA) requirements, and help you understand how a HECM for purchase could fit your plans.
2. Complete HUD-approved counseling
Before applying, you must attend a HUD-approved reverse mortgage counseling session. This independent counseling ensures you understand how the loan works, including your responsibilities for property taxes, insurance, and home maintenance—as well as the impact on your loan balance and estate.
3. Select your new home and make an offer
Once counseling is complete, you can begin the home search. The property must be move-in ready and meet all FHA property standards. Newly built homes are eligible, but construction must be fully complete, with a certificate of occupancy in place before loan closing.
4. Submit your application
After your offer is accepted, your lender will begin the official application process. You’ll provide documentation verifying your down payment source (for example, proceeds from your previous home sale or savings), as well as information about your new property.
5. Home appraisal and underwriting
An FHA-approved appraiser evaluates the home to confirm it meets lending standards and accurately reflects the purchase price. The lender’s underwriting team then reviews your financial profile to ensure you can meet ongoing obligations—including living in the home as a primary residence, and paying property taxes, homeowners’ insurance, and HOA dues.
6. Loan approval and closing
If your loan is approved, you’ll review and sign the final loan documents. You’ll pay a single set of closing costs, which cover both the purchase and the reverse mortgage transaction. Once complete, you can move into your new home.
7. After closing
After you move in, you’ll maintain your home, keep up with property taxes, and stay current on insurance and maintenance. You can live in your home for as long as you wish, as long as you meet the loan terms. The loan balance will be repaid later—typically when you move, sell, or pass away—and any remaining equity belongs to you or your heirs.
To learn more, please visit the CFPB’s “Reverse Mortgage: A Discussion Guide”
Getting started with a HECM purchase
A HECM for purchase could help you buy a new home that better fits your needs and lifestyle. By combining your home purchase and reverse mortgage loan into a single transaction rather than two separate transactions, you can simplify the process and keep more cash on hand for the future.
If you’re considering a Home Equity Conversion Mortgage for purchase, start by exploring what’s possible. Use our reverse mortgage calculator to see how much home equity you could access and whether this type of loan might fit your financial goals.
Disclaimer
These materials were not provided by HUD or FHA and were not approved by FHA or any government agency.
