Are you thinking about relocating or downsizing in retirement, but wondering if a reverse mortgage could still be an option? Good news: it can.
Many people associate reverse mortgages with staying in their current home. But thanks to a unique program called HECM for Purchase—also known as a reverse mortgage for purchase—you can use a reverse mortgage to buy a new home and eliminate monthly mortgage payments in one transaction.
Let’s break it down.
What is a Reverse Mortgage?
A reverse mortgage is a loan that allows homeowners age 62 and older to convert part of their home’s equity into cash—without selling their home or making monthly mortgage payments.
The most common type is the Home Equity Conversion Mortgage (HECM), which is backed by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD).
Key Features of a HECM:
- You must be 62 or older
- Your home must be your primary residence
- Eligible properties include single-family homes, some condos, townhomes, and 2–4 unit buildings
- Proceeds can be received as a lump sum, monthly payments, a line of credit, or a combination
- No monthly mortgage payments are required, but you must stay current on taxes, insurance, and maintenance
The loan is repaid when the borrower sells the home, moves out permanently, or passes away. And thanks to FHA insurance, you (or your heirs) will never owe more than the home is worth.
What Is a HECM for Purchase?
A HECM for Purchase (H4P) lets you use a reverse mortgage to buy a new home. Instead of taking out a traditional mortgage or paying entirely in cash, you can cover around 50–60% of the purchase price with a down payment, and finance the rest with a reverse mortgage.
This Means:
- One transaction for buying and financing
- No monthly mortgage payments required
- You keep more cash from your home sale or savings
You Still Need to:
- Live in the home as your primary residence
- Pay property taxes, insurance, and HOA fees (if applicable)
- Complete HUD-approved counseling before applying
How Does It Work?
Here’s how a typical HECM for Purchase works:
- Sell your current home (if applicable)
- Use the proceeds for the down payment on your new home (typically 50–60%)
- Finance the rest with a reverse mortgage
- Move in—no monthly mortgage payments required
Let’s compare two options:
| Scenario | Downsize | Upsize |
|---|---|---|
| Cash from sale | $500,000 | $500,000 |
| New home price | $400,000 | $700,000 |
| Down payment (approx.) | $236,000 | $405,500 |
| Reverse mortgage | $164,000 | $294,500 |
| Cash left over | $264,000 | $94,500 |
Note: Actual amounts will vary depending on borrower age, interest rates, and home values.
Who Is a HECM for Purchase Right For?
This program can be a great fit if you’re:
- Downsizing to a smaller, easier-to-maintain home
- Upsizing to a larger home closer to family
- Relocating to a retirement-friendly community
- Seeking to reduce monthly costs in retirement
- Looking to free up cash from your home equity
While many retirees “age in place,” studies show nearly 30% upsize in retirement. Whether you want more space or less, a HECM for Purchase gives you options.
Benefits of a HECM for Purchase:
- No monthly mortgage payments
- Keep more of your savings
- Buy a nicer or more suitable home
- Simplified process with one closing
- Non-recourse loan—you or your heirs never owe more than the home’s value
What’s the Process?
- Connect with a HECM for Purchase lender
- Meet with a HUD-approved counselor
- Get pre-approved and start shopping for a home
- Sell your current home, if needed
- Close on the new home—typically within 30 days
Working with a real estate agent familiar with HECM for Purchase loans is highly recommended. Your lender may be able to recommend one.
Mutual of Omaha Mortgage has specialists ready to guide you through the HECM for Purchase process. Click Here to find a loan officer near you.
Is a HECM for Purchase Right for You?
A HECM for Purchase is an innovative way to relocate in retirement while maintaining financial flexibility. It can help you:
- Reduce housing costs
- Free up your cash
- Buy a better-fitting home
- Avoid monthly mortgage payments
- If you’re curious whether this option makes sense for your situation, contact a HECM for Purchase loan specialist and start exploring what’s possible.
Disclaimer: This blog is intended for educational purposes only. Please consult with a financial advisor before making any decisions regarding reverse mortgages or retirement planning.