Can I Use a Reverse Mortgage to Buy a New Home?

What I find in practice is very different from what most people expect: many retirees can buy the right next home and still avoid taking on a required monthly mortgage payment.

The HECM for Purchase Program

The HECM for Purchase (H4P) program was created by HUD to allow homeowners age 62 and older to buy a new primary residence using a reverse mortgage in a single transaction. Rather than buying a home with a traditional mortgage and then getting a reverse mortgage, you do both at once.

Proprietary reverse mortgage programs also offer purchase options for California homeowners as young as age 55.

How Does It Work?

Here is the basic process:

� You identify a home you want to purchase

� A lender determines how much you can finance with a reverse mortgage based on your age, the home's value, and current interest rates

� You make a down payment to cover the difference between the purchase price and the reverse mortgage amount

� The loan closes and you take ownership of the new home - with no required monthly mortgage payment

Typically, the down payment required for a HECM for Purchase is 45-65% of the purchase price, depending on your age and the home's value. The older you are, the smaller the required down payment.

In my experience working with homeowners in San Marcos and Palm Springs, purchase files are often less stressful than refinance files because families start with a clear move objective. A client I worked with in Palm Springs recently used sale proceeds to buy closer to adult children and kept over $300,000 liquid after closing instead of tying it all up in the new property. Their reaction was that the strategy felt like downsizing without giving up financial flexibility.

Where Does the Down Payment Come From?

Common sources for the down payment include:

� Proceeds from the sale of your current home

� Savings or investment accounts

� Proceeds from an existing reverse mortgage on another property

� Gift funds (subject to lender guidelines)

You cannot use the reverse mortgage itself to fund the down payment - it must come from your own eligible sources.

Why Would Someone Use This?

The HECM for Purchase is particularly valuable for homeowners who want to:

� Downsize and move to a more manageable home without taking on a monthly payment

� Relocate to be closer to family while preserving cash flow

� Move to a home better suited for aging in place without a mortgage payment

� Purchase a home in retirement without depleting investment accounts

For example: a 70-year-old sells a $900,000 home and wants to purchase a $600,000 condo closer to family. Rather than paying cash and tying up $600,000, they use a HECM for Purchase - putting down approximately $300,000 and financing the rest with no monthly payment. The remaining $600,000 from the home sale stays liquid.

California-Specific Considerations

In California, the HECM for Purchase and proprietary purchase programs are available but require careful attention to property eligibility - particularly for condominiums, which must meet HUD or lender guidelines. New construction purchases are allowed but may have additional requirements.

HUD's HECM for Purchase program resources confirm this is a single-transaction purchase structure with required counseling and program-specific eligibility rules: HUD H4P guidance.

Frequently Asked Questions

Can I use a reverse mortgage to buy a home if I am already in one?

Yes - if you sell your current home, you can use the proceeds as the down payment for a reverse mortgage purchase of a new home. Many homeowners use this to right-size their living situation in retirement.

Is the process different from a regular reverse mortgage?

The core loan mechanics are the same - no monthly payments, non-recourse protection, and the same eligibility requirements. The main difference is that the transaction closes simultaneously with the purchase rather than on a home you already own.

What types of homes can I purchase?

Single-family homes, HUD-approved condos, and certain manufactured homes are eligible. Investment properties and vacation homes are not eligible - the purchased home must be your primary residence.

This material is not from HUD or FHA and has not been approved by HUD or any government agency. All reverse mortgage loans are subject to credit and property approval. Terms and conditions may apply. This content is for educational purposes only and is not financial, tax, or legal advice.