Stephanie Fields

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Many seniors use reverse mortgages to access the equity in their home, but recent legislation by the FHA now allows seniors to use this loan option for a home they do not yet own. A reverse purchase loan is a unique type of FHA-insured mortgage.

The Home Equity Conversion Mortgage (HECM) was enacted to make the homebuying process faster and easier for seniors, while reducing costs. Rather than buying a new home, paying closing costs, and then getting a reverse mortgage on the new property with additional fees, the HECM for reverse purchase makes this one transaction.

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HECM for Purchase

A HECM for Purchase loan allows seniors aged 62 and older to buy a new home with proceeds from a reverse mortgage. Homebuyers can purchase their new home and get the reverse loan with one transaction, whether the homebuyer wants to relocate or downsize.

The program can be used to buy a single-family home, small multi-family home or condominium. You may receive a fixed-rate loan to use toward the purchase of the new home.

Down Payment for an HECM Purchase Loan

There is no down payment necessary for an HECM for Purchase. With a regular reverse mortgage, the loan amount is based on the equity in the home. With a reverse purchase, there is no equity, as the home has not been purchased, but there must be equity to cover accrued interest.

A HECM for Purchase loan typically requires paying about 50 percent of the purchase price of the home in cash. This down payment toward the home purchase must be made regardless of how long the borrower plans to remain in the home.

How to Get an HECM Reverse Mortgage

There are many ways to get an HECM reverse mortgage to buy a home:

Buy with a reverse loan. Seniors can choose to buy a new home and then take out an HECM reverse loan at the same time, while paying closing costs just once. The borrower must be able to pay the difference between what they can borrow and the sales price, plus closing costs.
Buy with a forward loan and then repay with a reverse mortgage. Another option is getting a regular loan to buy a home and then repaying the mortgage with a reverse mortgage. This requires qualifying for a standard loan and paying both closing costs.
Pay in cash and then get a reverse loan. Some borrowers prefer to buy a home in cash and then use a HECM to replace the money.