Most people hear “reverse mortgage” and picture someone borrowing against a home they already own. That’s one use. But a reverse mortgage can also help an eligible buyer purchase a new home, which is a pleasant surprise for people who’d rather avoid a required monthly mortgage payment in retirement.
It’s called a Home Equity Conversion Mortgage for Purchase, or HECM for Purchase. You may also see it called H4P. It combines your cash contribution with an FHA-insured reverse mortgage in one home purchase transaction.
The appeal is straightforward. You may be able to buy a home that better suits your life while keeping more cash available than you would with an all-cash purchase. There’s no required monthly principal and interest payment while you meet the loan terms. And, like any other mortgage, you still own your home.
Start with where you want to live
Maybe you’d like fewer stairs and less yard work. Perhaps your grandchildren live an hour away, and you’d rather see them on an ordinary Tuesday than wait for a holiday. Or you’ve found a neighborhood where you can picture spending the next chapter of your life.
A HECM for Purchase can be worth exploring when the move makes sense but paying for it needs another look. It may help you keep some sale proceeds available or consider a home beyond your planned cash budget. What’s possible depends on your circumstances, so Richard will begin with an illustration rather than a rule of thumb.
You bring a substantial cash contribution to closing that might come from selling your current home, savings, or another eligible source. The HECM covers the remaining eligible portion of the purchase, and he will show you the total funds needed, including closing costs.
A few early conversations make the search easier
Before you fall in love with a property, discuss your price range, available cash and the reserve you’d like to keep with Richard. HECM borrowers must be at least 62, and he will review how a spouse will be included if one of you is younger. The home must qualify for the program, so condos and other property types deserve an early check.
Richard will coordinate with your Realtor as the search moves along. Your financial advisor and family are welcome to participate, with your permission. Knowing the financing possibilities early can help everyone focus on homes that fit both your wishes and your budget.
There’s also a financial assessment and independent counseling with a HUD-approved counselor. These conversations help establish that the mortgage fits your situation and that you understand how it works. You’ll have opportunities to ask questions throughout the process.
The monthly budget still matters
The absence of a required principal and interest payment can make a meaningful difference to retirement cash flow. You’ll still pay property taxes, insurance, maintenance and applicable association charges, and the new home must be your primary residence. Those expenses belong in the comparison alongside the purchase price.
The loan has upfront and ongoing costs. Interest and mortgage insurance accrue, generally increasing the balance and reducing the equity that would otherwise remain. You can make voluntary payments if you choose. He will compare this structure with paying cash and a conventional mortgage so you can decide which feels right for your plans.
A reverse mortgage for purchase is worth knowing about before you decide what your next home has to look like. If you’re thinking about a move, call or text 404-313-9785, or email richard.mcwhorter@ridgereverse.com. Let’s see what choices you have.
Richard W. McWhorter, NMLS 1618644. Ridge Reverse, powered by Amerifund. Equal Housing Opportunity. Information is subject to change. This isn’t an offer of credit or a commitment to secure a loan. Eligibility and terms vary. This material isn’t from HUD or FHA and hasn’t been approved by any government agency.