How to Use a Reverse Mortgage (HECM) to Buy a Home

A Home Equity Conversion Mortgage (HECM) for Purchase, or an H4P, lets qualified homeowners buy a new primary residence without the burden of monthly mortgage payments. Learn how it works below.

What is an H4P?

Backed by the Federal Housing Administration (FHA)

HECMs are the only government-backed reverse mortgage program. These loans are non-recourse, which means you never pay more than the home is worth, even if you owe more than what it sells for.

Used to purchase a new primary residence for long-term living

The FHA limits eligibility to primary residences only, so it can’t be used to purchase vacation homes, commercial buildings, or investment property.

No ongoing mortgage payments are required

Borrowers do not need to make a traditional monthly principal and interest payment once the down payment is made. However, borrowers can do so if they wish.

What Can a Reverse Mortgage (HECM) for Purchase Be Used For

Single-family residences that meet FHA guidelines

Borrowers can use an HECM for conventional housing, some condominiums, manufactured properties built after 1976 (double wide or larger), and new construction with a Certificate of Occupancy (CO) at closing.

Certain multi-family properties

An H4P loan can also be used to finance a multi-family property with up to 4 units, so long as the borrower intends to live in one of the units as their primary residence.

Planned Unit Development (PUD) properties

Seniors may use a reverse mortgage to purchase a property located within a Planned Unit Development (PUD). These are residential communities that offer individual housing and shared amenities.

Pros

Cons

Talk to our mortgage experts today about finding the right loan for you.

Alternatives to a Reverse Mortgage (HECM) for Purchase

Cash-Out Refinancing

Interest-Only Mortgages

Conventional Mortgages

How Do I Know If a Reverse Mortgage (HECM) for Purchase Is Right for Me?

You have a high equity position in your current home

Borrowers with significant equity in their existing property stand to benefit most from using a home equity conversion mortgage to buy a new home.

You plan to age in place in your new home

Since borrowers must live in the home they buy, and monthly payments can be deferred as long as they do, an H4P loan may be ideal for seniors who want to age in place.

You have the resources for a substantial down payment from specific sources

Borrowers may not use funds obtained from sweat or trade equity, credit card cash advances, rental credit, or financial gifts from anyone who stands to benefit from the transaction.

When Is the Best Time to Use a Reverse Mortgage (HECM) for Purchase?

The best time to use a reverse mortgage (HECM) for purchase is when you want to move to a new home that you plan to stay in during your retirement.

Likewise, a HECM for purchase may be ideal if you’re looking to right-size into a more suitable home or move closer to family members without taking on the financial burden of traditional mortgage payments.

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FAQ

How is the amount I can borrow with an H4P loan determined?

The amount you can borrow with an HECM for purchase loan is based on four factors, including your age, the appraised value of the home you want to buy, the current market interest rate, and FHA loan limits. Generally, the older you are, the more you can qualify for.

How is my down payment calculated?

How much your down payment will be also depends on the appraised value of the home you’re buying, your age, current interest rates, and location-based loan limits. The down payment is calculated as the difference between the sale price or appraised value of the home and the loan amount you qualify for through the HECM.

What documents do I need to apply for an HECM?

To apply for an H4P, borrowers generally need a government-issued ID and proof of income. You’ll also need to provide documentation of your current assets and any existing debts, as well as the property’s appraised value.

Will I need to pay property taxes and insurance?

Even though borrowers don’t have to make traditional monthly mortgage payments, they are still responsible for paying their property taxes and homeowner’s insurance. The home itself must also be kept in good condition, and failure to meet these requirements can result in defaulting on the loan and potential foreclosure.

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