Can I Buy a Home With a Reverse Mortgage?
Finding the right home as you get older isn’t just about space, it’s about comfort, convenience, and making your nest egg last.
Maybe you want to right-size into a smaller place, move closer to family, or find a single-family home that’s easier to manage. But the thought of taking on a monthly mortgage payment? That can feel like a step backward.
A reverse mortgage purchase could be the best option. It helps older homeowners buy a new home using home equity, with no required monthly mortgage payments. Wondering if this program makes sense for you? Rate’s HECM options can help, get started today!
How Can I Use a Reverse Mortgage to Buy a Home?
A reverse mortgage purchase works by letting a home buyer use the equity from their current home to fund the purchase price of a new home.
Instead of making monthly payments, the loan balance is repaid when the borrower sells the property, moves into an assisted living facility, or passes away.
This type of loan is backed by the Federal Housing Administration (FHA) and is known as a HECM for Purchase program.
It’s a way for older homeowners to right-size into a more suitable property type, such as a single-family home or an FHA-approved condominium, without the pressure of monthly mortgage payments.
Here’s how the process works:
- The borrower sells their current home and uses the lump sum proceeds as a down payment on a new home.
- A reverse mortgage lender then provides the remaining loan proceeds, covering the rest of the purchase price.
- The homeowner is not required to make a monthly mortgage payment, but they must still cover property tax, homeowner insurance premium, and maintenance costs to protect their principal residence.
- When the homeowner moves or sells, the loan balance is paid from the sale price of the house.
While this program offers older borrowers the flexibility of no required monthly mortgage payments, it’s important to understand that charges like the upfront mortgage insurance premium, origination fee, and other set of closing costs still apply.
Can I Use a HECM to Purchase a Home?
Yes, an HECM loan is one of the most common reverse mortgage options for buying a new home.
The HECM for Purchase program is designed to help senior buyers use their home equity from a current home to complete a new home purchase—without needing a regular mortgage or taking on a monthly payment.
Unlike a home equity loan, an HECM reverse mortgage does not require monthly mortgage payments, though the borrower must still meet reverse mortgage requirements. Those include:
- Living in the home as a primary residence
- Paying property-related tax and insurance
- Maintaining the property to FHA standards
This type of reverse mortgage lets home buyers complete a new property purchase loan in a single transaction—using the HECM proceeds from the loan balance—rather than buying the home first and later refinancing with a reverse mortgage loan.
This option can be a right choice for older homeowners looking to buy their next home while preserving cash flow and avoiding the strain of a monthly mortgage payment—giving them peace of mind as they settle into their principal residence for the long haul.
Benefits of a Reverse Mortgage to Purchase a Home
A reverse mortgage offers several advantages for seniors looking to buy a new home:
Payment Options
Instead of taking on a monthly mortgage payment like with a traditional mortgage, HECM borrowers can use their loan proceeds to cover the purchase price of a new home in a single transaction.
This leaves more money available for other costs like property tax, homeowner insurance premium, and maintenance cost, giving home buyers greater flexibility.
Tax Benefits
The money from a reverse mortgage loan is not treated as taxable income because it’s considered loan proceeds, not earned income. This can lower a borrower’s tax burden while helping preserve their nest egg.
However, consulting a financial advisor is always a good way to get accurate information on potential tax benefits.*
Mortgage Payments
A HECM reverse mortgage comes with flexibility of no required monthly mortgage payments—a major difference from a traditional mortgage. That said, homeowners still need to stay on top of property tax, homeowner insurance premium, and maintenance costs to keep their loan balance in good standing.
Fund Your Life
Without a monthly mortgage payment hanging over you, a reverse mortgage can free up money to focus on what matters—covering medical expenses, traveling, or helping a family member. It’s a way for older borrowers to enjoy their new home while keeping their nest egg intact.
Who Qualifies for a Reverse Mortgage?
Not every home buyer can get a reverse mortgage purchase loan—there are a few key requirements set by the Federal Housing Administration (FHA) and HUD that every borrower and property must meet.
These rules help ensure the loan is the right choice for older homeowners and that the home is a safe, long-term place to live.
Age Requirement (62+ Years Old)
At least one borrower must be 62 years of age or older, and the age of the youngest borrower is what matters most.
The older you are, the more home equity you can typically access through a HECM loan. A higher principal limit often means more loan proceeds, helping with the purchase price of your new home.
Primary Residence Requirement
The new property must be your primary residence, meaning it’s the home you’ll live in full-time. A vacation home or investment property won’t qualify for a reverse mortgage loan.
You’ll also need to move into the house within 60 days after closing. Keeping the property as your principal residence is required for the HECM loan to remain in good standing.
Eligible Home Type
The property type needs to meet FHA and HUD guidelines. Eligible homes include single-family homes, FHA-approved condominiums, and certain manufactured homes.
The home must also meet property condition compliance standards. Before the reverse mortgage lender approves your loan, they’ll confirm the home is eligible and that it aligns with FHA requirements.
Sufficient Home Equity
To qualify for a HECM reverse mortgage, you’ll need sufficient home equity, the difference between your property value and any loan balance. The more equity you have, the more HECM proceeds you may receive.
A reverse mortgage lender will review your home equity to ensure you have enough to meet the down payment and purchase price requirements.
Financial Stability (Taxes, Insurance, Maintenance)
Even without a monthly mortgage payment, you’ll need to show you can afford property tax, homeowner insurance premium, and maintenance costs. These costs protect your home and keep the HECM loan in good standing.
Borrowers must demonstrate ongoing financial stability to a reverse mortgage lender, proving they can manage these expenses for the long time they plan to live there.
FHA Requirements (For HECM Loans)
You’ll need to work with an FHA-approved lender and meet all FHA requirements and HUD standards. These rules are in place to protect both borrowers and reverse mortgage lenders.
Working with an FHA-approved lender like Rate ensures your HECM loan is part of a government agency-backed program, providing security and proper guidance throughout the process.
No Delinquent Federal Debt
Any Federal Government debts, like unpaid income tax or property-related tax, must be resolved before applying. Borrowers with delinquent debt won’t qualify for a HECM reverse mortgage.
Clearing any federal debt beforehand ensures the loan process goes smoothly and allows the reverse mortgage lender to approve your HECM loan without delays.
Property Condition Compliance
The home you’re buying must meet FHA and HUD safety and livability standards. This property condition compliance ensures the house is in good shape and suitable for older homeowners.
A reverse mortgage lender will with an inspector who will inspect the home to confirm it’s free of hazards, making sure it’s a safe and secure place for your primary residence.
How a Reverse Mortgage Works When Buying a Home
With a reverse mortgage purchase, you use your home equity to help cover the purchase price of your new home, reducing what you need to pay out-of-pocket.
You’ll still bring a down payment, often from selling your current home or savings, but the HECM loan proceeds fill the gap.
Once you close, the home is yours, you own the property and live there as your primary residence. But here’s the difference: there’s no required monthly mortgage payment.
Instead, the loan balance grows with interest over time and is repaid later, typically when you sell or move. It’s a way to right-size into your next home while keeping your cash flow flexible.
What Is the 95% Rule on a Reverse Mortgage?
The 95% rule allows heirs to repay the reverse mortgage loan at 95% of the home’s appraised value if the loan balance exceeds the property’s market value, helping heirs avoid paying more than the property’s worth.
How Much Do You Need for a Down Payment on a Reverse Mortgage?
The required down payment depends on the borrower’s age, current interest rate, and loan amount. Typically, borrowers need to put down 30-70% of the purchase price.
How to Start a Reverse Mortgage Today
A reverse mortgage purchase can be a smart way for older homeowners to buy a new home without the burden of a monthly mortgage payment.
It lets you tap into your home equity to secure your next home and free up cash flow for what matters most, whether that’s enjoying retirement, helping family, or simply feeling financially secure.
Of course, every home buyer has different needs, and making the right choice starts with the right information. If you’re ready to see how a HECM loan could work for your new home purchase, Rate’s HECM options and expert guidance can help you get there—start your journey here.
Charges such as an origination fee, mortgage insurance premiums, closing costs and/or servicing fees may be assessed and will be added to the loan balance. The loan balance grows over time, and interest is added to that balance. Interest on a reverse mortgage is not deductible from your income tax until you repay all or part of the interest on the loan. Although the loan is non-recourse, at the maturity of the loan, the lender will have a claim against your property and you or your heirs may need to sell the property in order to repay the loan or use other assets to repay the loan in order to retain the property. You should know that a reverse mortgage is a negative amortization loan which means that your mortgage balance will increase while your home equity decreases if you do not make principle and interest payments on your loan. This may make it more difficult to refinance the loan or to obtain cash upon the sale of the home. However, you will never owe more than the home is worth when the loan is repaid.
This is not a commitment to lend. Reverse mortgages are eligible for borrowers 62 and older. Age limits for additional brokered loan options may start at 55. The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and 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. Otherwise, the loan must be repaid when the last borrower passes away or sells the home. Prices, guidelines and minimum requirements are subject to change without notice. Some products may not be available in all states. Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product; make sure to compare loan types when making a financing decision. This material has not been reviewed, approved or issued by HUD, FHA or any government agency. Rate, Inc. is not affiliated with or acting on behalf of or at the direction of HUD, FHA or any other government agency. To find a Reverse Mortgage counselor near you, search the HECM Counselor Roster at https://entp.hud.gov/idapp/html/hecm_agency_look.cfm or call (800) 569-4287.
*Guaranteed Rate does not provide tax advice. Please contact your tax adviser for any tax related questions.
