Buying a Home with a Reverse Mortgage: Step-by-Step Guide

Buying a Home with a Reverse Mortgage: Step-by-Step Guide

When most people hear the term reverse mortgage, they tend to think of it as a way for older homeowners to stay in their current home and tap into its equity without making monthly mortgage payments. However, there are other uses for a reverse mortgage. It's important to note that borrowers are still responsible for paying property taxes, homeowners insurance, any homeowners association (HOA) fees, and keeping up with home maintenance.

What if you're looking to move? Maybe you want to downsize, move closer to family, or relocate to a warmer climate. The good news is, yes, you can use a reverse mortgage to buy a new home. It’s called a Home Equity Conversion Mortgage for Purchase or HECM for Purchase, and it just might be the solution you didn’t even know existed.

In this guide, we’ll break down exactly how this type of reverse mortgage works, who it’s for, and why it could be a smart move for your next chapter in life.

What is a Reverse Mortgage?

A reverse mortgage is a special type of home loan designed for homeowners who are typically age 62 and older**. It lets you turn part of the equity in your home into tax-free*** cash (depending on how you use it) without having to sell the house or make monthly mortgage payments.*

Instead, the loan is repaid when you sell the home, move out permanently, or pass away. Until then, you continue living in the home as your primary residence, and you’re still responsible for paying property taxes, homeowners insurance, HOAs and keeping up with maintenance. With options like lump-sum payouts, monthly payments, or even a line of credit, reverse mortgages can offer a lot of financial flexibility.

So, Can You Really Use a Reverse Mortgage to Buy a Home?

Yes, you absolutely can! The type of reverse mortgage we’re talking about here is often called a Home Equity Conversion Mortgage for Purchase or HECM for Purchase.

Here’s how it works:

• You sell your current home.
• You use some (or all) of the proceeds from that sale as a down payment on a new home.
• The reverse mortgage loan covers the rest of the new home’s purchase price.

Just like a traditional reverse mortgage, you won’t have to make monthly mortgage payments* on the new home. And you still get to enjoy the advantages of being a homeowner, just in a home that better fits your lifestyle.

Reasons to Get a HECM for Purchase?

There are a lot of reasons why this option appeals to retirees:

1. Downsizing or Rightsizing

Maybe your current home feels too big. Or maybe maintaining it is starting to feel like a full-time job. Many people use a HECM for purchase to “rightsize,” trading in a large house for something more manageable, whether that’s a cozy condo or a one-story home.

2. Relocating to Be Closer to Family or Amenities

Retirement is a great time to reevaluate where you want to live. Want to be closer to the grandkids? Dreaming of that sunny retirement spot you always vacationed at? A HECM for Purchase can help make that move possible, without straining your savings.

3. Freeing Up Cash for Retirement

Buying a home with a reverse mortgage means you don’t have to tie up all your funds in the property. You keep more cash in hand for travel, medical costs, hobbies, or just having peace of mind knowing you have a financial cushion.

What's the HECM for Purchase Process Like?

Let’s walk through the general steps involved:

1. Sell Your Current Home

The first step is selling your existing property (or having enough savings or assets to fund the required down payment). The proceeds from this sale will go toward your new home.

2. Find a New Home That Qualifies

Not every property is eligible for a HECM for Purchase. Typically, you’ll be looking at single-family homes, townhomes, or certain FHA-approved condos. The new home must be your primary residence, not a vacation home or an investment property. For more information on property requirements, visit the U.S. Department of Housing and Urban Development (HUD) website. If you are buying a condo, visit HUD.gov to confirm your condo is FHA-approved.

3. Apply for the HECM for Purchase

Just like with any mortgage, you’ll need to apply. You’ll have to meet the basic requirements, which include:

• Being at least 62 years old (age requirements differ by product and state)
• Passing a financial assessment to show you can afford property taxes, insurance, and upkeep
• Participating in a HUD-approved counseling session to make sure you fully understand the loan

4. Close the Deal

Once everything is approved, you’ll close on your new home, and the reverse mortgage will cover a portion of the purchase. From there, you move in and enjoy your new space without worrying about monthly mortgage payments.*

What Are the Advantages?

There are some clear advantages to using a reverse mortgage for purchase:

• No monthly mortgage payments*: That alone can make a big difference in retirement budgeting.
• You own the home: Just like with any mortgage, the title is in your name.
• More financial flexibility: You keep more cash in savings rather than locking it all up in home equity.
• Non-recourse loan: You or your heirs will never owe more than the home is worth when the loan is due and payable.

Are There Downsides?

As with any financial product, it’s important to consider the full picture:

• You still have responsibilities: You’ll need to pay property taxes, homeowners insurance, HOAs and keep the home in good condition.
• Not for everyone: This type of loan works best for people who plan to stay in the new home for the long haul. It also requires careful planning to make sure it fits your retirement goals.

Is It Right for You?

A HECM for purchase can be a powerful tool for the right homeowner. If you’re planning a move and want to maximize your retirement income without the burden of monthly mortgage payments*, it’s definitely worth exploring.

Before making a decision, it’s a smart idea to speak with a reverse mortgage specialist or financial advisor who can help you weigh the pros and cons based on your personal financial situation.

Summary

The idea of moving during retirement can feel overwhelming, but it can also open the door to a better lifestyle, more comfort, and greater financial peace of mind. Whether you’re downsizing, relocating, or just dreaming of a fresh start, using a HECM for Purchase to buy your next home could make it happen.

And the best part? You get to live in a home you love, without the stress of monthly mortgage payments eating into your retirement savings.*

 

Want to learn more or find out how much you may be eligible for? Contact us today at (858) 389-4214.

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