It is possible to buy a home with a reverse mortgage. Home Equity Conversion Mortgages (HECM) for purchase make it possible to move into a house that better suits your needs on your current income.  

  • A HECM for purchase is an alternative to a conventional home loan for seniors. 
  • You can buy a house with a HECM for purchase. 
  • You must put down at least 50% of the new house’s price from savings or home equity. 
  • This loan has pros and cons and you should carefully consider your own situation before you use one. 

Before you decide what is best for you carefully consider your needs and financial situation. Then, consult a competent broker to help you find the loan that fits your requirements.  

What is a Reverse Mortgage for Purchase? 

It gives seniors a different option for financing a move from one house to a new home. The original purpose of HECMs was to allow seniors with high equity but low income to stay in their home if they want. This update makes the loan more flexible by allowing seniors to use it when they sell one property with a lot of equity and buy a new home. 

Before, seniors who wanted or needed to move had to buy a house and finance it with a traditional loan. Then, they would refinance immediately. This newer loan allows seniors to cut out the step of getting a traditional loan and save the time and closing costs of this step.1  

Can I Buy a Home with a Reverse Mortgage? 

You can purchase a home with a reverse mortgage if you have enough savings or substantial equity in the house you live in now.2  

Benefits 

The most important benefit of this program is that you can move from one home to another in one step.  You don’t have to get a traditional loan and then refinance. Other benefits have to do with why you want to move. You can: 

  • Downsize and eliminate your monthly payment 
  • Lower your cost of living 
  • Retain ownership  
  • Move closer to friends or family 

You can also move into a home that better fits your needs, such as a house with no stairs or is more convenient to doctors or medical facilities.  

Considerations 

This isn’t right for everyone. You must think about whether it fits your situation. HECMs have strict qualifications and have added requirements for purchase: 

  • You must move in within 60 days of closing. 
  • The property must be a single-family home or an FHA approved condominium. 
  • You must pay the difference between the HECM amount and the purchase price of your new home from a qualified source. 

A qualified source usually includes savings or proceeds from the sale of the house you sell. You can’t pay the difference with proceeds from another loan.  

It works best for people with a lot of savings or equity in their homes but who have little or no income. If that doesn’t describe you there are probably better alternatives. Whatever your plans, there are many options today. 

How Much do You have to Put Down When You Buy a Home with a Reverse Mortgage? 

Expect to put down at least 50% of the home price. Down payments vary because of several factors, including: 

  • Your age – The older you are the more you can borrow 
  • The price of your new home 
  • The current interest rate 

Lenders have some discretion about how much they require for a down payment, so shop around for the best terms.3  

Reverse Mortgage for Purchase Pros and Cons 

This option has advantages and disadvantages depending on how you use the money. Some of the pros include: 

  • You may not have a payment with a large enough down payment. 
  • It increases your purchasing power because you put down what you can afford and use the loan for the rest. 

Therefore, you may be able to move into a house that better suits your needs on your current income. While this may sound ideal, there are cons to this loan as well: 

  • Typically, closing costs can be high. 
  • Interest rates are higher than conventional loans. 
  • You lose the equity that you built up over the years in your largest asset. 

It is not free money, but it’s also not a vehicle for the bank to take your home. Learn all the facts about this type of loan before you consider using one.4  

Final Thoughts About Whether to Buy a Home with a Reverse Mortgage 

Just like any other financial instrument, whether to buy a home with a reverse mortgage for purchase is right for you depends on your financial situation. If you have substantial income or you don’t have any home equity or savings, then you should probably consider another type of loan to fit your needs. 

However, if your current home doesn’t fit your needs, and you need to move, it may be a good option. You must have enough savings or equity to put down at least half of your new home’s sale price. The other consideration is your income. If you have enough income, you should probably consider a lower interest loan. A good broker will walk you through all of your options so that you can make a good decision. 

References 

  1. Kiplinger 
  2. One Reverse Mortgage 
  3. All Reverse Mortgage, Inc. 
  4. My HECM