Reverse Mortgage Purchase: How to Buy a New Home
Buying a new home while deciding what to do with your current home and savings can feel like a lot to sort through. A reverse mortgage purchase allows an eligible borrower to buy a primary residence by combining reverse mortgage proceeds with money brought to closing. In this guide, I, Mike Burton (NMLS# 3373), will explain how the program works, what you may need, and what to think about before moving forward.
Key Takeaways
- Purpose: A reverse mortgage purchase can help an eligible borrower buy a new primary residence without a required monthly principal and interest payment.
- Eligibility: A Home Equity Conversion Mortgage purchase generally requires an eligible borrower who is at least 62, financial assessment, and HUD-approved counseling.
- Cash Needed: You will bring money to closing, and the amount depends on age, current rates, the home’s value, and program guidelines.
- Ongoing Obligations: You must occupy the property as your primary residence and continue paying property taxes, homeowners insurance, maintenance, and applicable association charges.
Quick Answers
- Can a reverse mortgage be used to purchase a home? Yes. An eligible borrower may use a reverse mortgage purchase program to buy a qualifying primary residence.
- Will I own the home? Yes. You hold title to the home, subject to the reverse mortgage lien and the terms of the loan.
- Will I have a monthly mortgage payment? There is generally no required monthly principal and interest payment. You must still meet the property-related obligations.
- Can I use the program for a vacation home? No. A HECM purchase is intended for a home that will be your primary residence.
What Is a Reverse Mortgage Purchase?
A reverse mortgage purchase is commonly called a HECM for Purchase. HECM stands for Home Equity Conversion Mortgage. It is an FHA-insured reverse mortgage used to purchase a qualifying home.
Ok, here is how the program works. You bring an upfront amount of money to the closing. The reverse mortgage supplies the remaining eligible portion of the purchase price, subject to the appraisal, lending limits, current rates, and program rules.
You then own and live in the home. There is generally no required monthly payment of principal and interest as long as the loan terms are met. The loan balance normally increases over time because interest and applicable charges are added to it.
This is not a home with no expenses. You remain responsible for property taxes, homeowners insurance, maintenance, and any condominium or homeowners association charges. Not meeting these obligations can cause the loan to become due and payable.
How Much Money Will I Need at Closing?
A reverse mortgage purchase does not finance the full purchase price. You will need to bring an upfront investment plus applicable closing costs that are not covered by the loan.
The amount is based on several items:
- The age of the youngest eligible borrower or applicable non-borrowing spouse
- The home’s purchase price and appraised value
- Current market rates
- The applicable HECM lending limit
- Initial mortgage insurance and other closing costs
- Current FHA and lender guidelines
Generally, an older eligible borrower may have access to a larger portion of the home’s value than a borrower who has recently reached the minimum age. This does not mean the same amount will work for every person or every property.
For example, one buyer may sell a current home and use part of the proceeds for the new purchase. Another buyer may use eligible savings or investment funds. This is 1 example, we have many options to choose from.
The source of your closing funds must be documented and acceptable under current guidelines. Gifts and other funding sources may be permitted in certain situations. Borrowed funds and seller financing are generally restricted, so it is important to review the source of funds early.
Who May Be Eligible for a HECM Purchase?
For an FHA-insured HECM, borrowers are generally required to be at least 62 years old. A spouse who is under 62 may sometimes be treated as an eligible non-borrowing spouse, but this has important legal and financial details that should be reviewed carefully.
Age is only one part of the review. The lender will also complete a financial assessment. This looks at your ability and willingness to keep up with property taxes, insurance, maintenance, and other housing expenses.
The lender may review:
- Income and available assets
- Credit and payment history
- Property tax and insurance history
- Current debts and monthly obligations
- The source of the money being brought to closing
In some situations, funds may need to be set aside from the reverse mortgage to pay future property taxes and insurance. This can reduce the loan proceeds available for the purchase. Guidelines can change, so the full scenario should be reviewed using current 2026 program information.
What Homes Can Be Purchased?
The home must generally meet FHA property requirements and be used as your primary residence. Eligible properties may include:
- A one-unit single-family home
- Certain two- to four-unit homes when you occupy one unit
- An FHA-approved condominium
- Certain manufactured homes that meet FHA requirements
- Some planned unit developments
Property condition matters. FHA may require certain health, safety, or structural issues to be corrected before closing. Condominium eligibility should also be checked early because not every condominium project is approved for FHA financing.
New construction may be eligible once the home is complete and the required occupancy documents are available. The exact timing and documentation vary by property and lender.
Reverse Mortgage Purchase vs. Traditional Mortgage
Both choices can be used to buy a home, but the payment structure is different. Here is a simple comparison.
| Feature | Reverse Mortgage Purchase | Traditional Mortgage |
|---|---|---|
| Monthly principal and interest | Generally not required while loan terms are met | Normally required each month |
| Money needed at closing | Usually a substantial upfront investment | Depends on the loan program and down payment |
| Loan balance | Typically grows as interest and charges are added | Typically decreases when scheduled payments are made |
| Occupancy | Must be the borrower’s primary residence | May be available for primary, second, or investment homes |
A traditional fixed rate mortgage may require less money upfront, but it normally comes with a scheduled monthly payment. A reverse mortgage purchase may require more money at closing, but it can reduce required monthly housing payments.
Neither structure is automatically right for everyone. The better fit depends on your available assets, monthly budget, plans for the property, and longer-term goals.
What Happens to the Reverse Mortgage Later?
The reverse mortgage generally becomes due when the last borrower dies, sells the home, permanently moves out, or no longer meets the loan requirements. A prolonged absence from the property may also affect primary residence status.
The borrower may sell the property at any time without a prepayment penalty. The reverse mortgage is paid from the sale proceeds, and any remaining equity belongs to the homeowner or estate.
A HECM is generally a non-recourse loan. This means the borrower or estate will not owe more than the home’s value when it is sold to satisfy the debt, as long as the program requirements are followed. Heirs may have options to keep or sell the home, subject to current rules and deadlines.
Steps to Purchase a Home With a Reverse Mortgage
1. Review Your Goals and Available Funds
Start with the purchase price you are considering and the money you expect to have available. If you are selling another home, discuss the expected timing of that sale.
2. Request a Preliminary Review
A mortgage professional can prepare an estimate using your age, expected purchase price, current rates, and location. This helps you understand the possible loan amount and estimated cash needed before making an offer.
3. Complete HUD-Approved Counseling
HECM counseling is required. The counselor is independent from the lender and explains the program, costs, responsibilities, and possible alternatives.
4. Find a Qualifying Property
The purchase agreement should allow enough time for financing, appraisal, underwriting, and any required property review. This is especially important for Cape Cod condominiums and properties with unique features.
5. Complete the Application and Underwriting
You will provide financial documents, identification, asset statements, property information, and documentation for your closing funds. The lender will also order an appraisal and review the property.
6. Close and Occupy the Home
At closing, your approved funds and reverse mortgage proceeds are applied to the purchase. You must generally occupy the property as your primary residence within the required program timeframe.
The full process often takes several weeks. Appraisal issues, condominium reviews, construction completion, or the sale of another home can add time. No worries, I am happy to go over the timing again as the pieces come together.
Planning a Purchase on Cape Cod or the Islands
A reverse mortgage purchase may be worth reviewing if you plan to make a home on Cape Cod, Nantucket, Martha’s Vineyard, the South Shore, or the Boston Area your primary residence. Coastal properties can have additional considerations, including flood insurance, private septic systems, condominium approval, and seasonal access.
If the timing of your current home sale does not line up with the new purchase, another short-term option may also need to be reviewed. A bridge home loan has a different payment and qualification structure, but it may be part of the discussion in some situations.
I have worked in mortgage lending for 40 years and have lived on Cape Cod for 46 years. I know that every purchase has moving parts. The main idea is to understand the program, the costs, and your responsibilities before deciding which direction you will go in.
Let’s Review Your Purchase Plan
If you are considering a reverse mortgage to purchase a new primary residence, call, text, or email me at Slade Mortgage Group. I can help you review the estimated cash needed, compare loan structures, and understand the next steps.
It also helps to do this before you make an offer. A pre-approval review can identify documentation, property, or timing questions early. Rates, fees, loan limits, and program requirements change, so we will use the current information available for your scenario.
Frequently Asked Questions
What types of properties qualify for a reverse mortgage purchase?
Qualifying properties may include single-family homes, certain two- to four-unit homes, FHA-approved condominiums, and eligible manufactured homes. The property must meet FHA requirements and generally must be occupied as the borrower’s primary residence.
How is the reverse mortgage purchase amount determined?
The amount is based on the age of the youngest eligible borrower or applicable non-borrowing spouse, current rates, the property value, and current program limits. The purchase price and appraisal are also reviewed, so the final amount varies by scenario.
Can I use proceeds from selling my current home at closing?
Yes, documented proceeds from the sale of a current home are commonly used toward the required investment. The sale and purchase need to be coordinated carefully so the funds are available and verified for closing.
What happens if the appraisal is lower than the purchase price?
A lower appraisal may reduce the reverse mortgage proceeds available for the purchase. You may need to renegotiate the price, bring additional eligible funds, or decide not to move forward under the terms of the purchase agreement.
Can a non-borrowing spouse remain in the home?
An eligible non-borrowing spouse may have certain protections that allow the spouse to remain in the home after the borrower dies. Specific conditions must be met, including occupancy and continued payment of taxes, insurance, maintenance, and other property charges.
This is educational and not financial advice. Loan programs and guidelines can change. Talk with a licensed mortgage professional about your specific scenario.
Mike Burton
Mike has over 33 years in the mortgage industry as a top originator for each institution he was employed with. Mike started Slade Mortgage Group in 1997 and formed a team of professionals to service clients by beating the banks.
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