Updated: 10/22/2025

Welcome to our 2025 Guide to Reverse Mortgage Purchase (HECM for Purchase).  This year’s update reflects the latest HUD rule changes, including new allowances for 6% seller contributions, expanded gift funding options, and updated property requirements.

If you’re planning to move, downsize, or relocate closer to family, a reverse mortgage can help you buy your next home without taking on monthly mortgage payments.

In this guide, we’ll walk through how the purchase program works, the recent 2025 policy updates, and what these changes mean for you in real-world terms.

ARLO handing key to purchase home using reverse mortgage

Reverse Mortgage Purchase Basics

The HECM for Purchase (H4P) is an FHA-insured reverse mortgage that helps you buy a new home while financing part of the purchase with your home’s equity.  You’ll use your own funds for a down payment, and the reverse mortgage covers the rest, letting you own your new home without required monthly mortgage payments as long as you live there.

To qualify, you must:

  • Be at least 62 years old.
  • Meet HUD’s financial guidelines for income and credit.
  • Provide a sufficient down payment (the amount varies by age and interest rate).

After closing, you must:

  • Move in and make the home your primary residence within 60 days.
  • Keep the property in good repair and in compliance with FHA standards.
  • Stay current on property taxes, homeowner’s insurance, and HOA dues (if applicable).

The most significant benefit of the H4P program is convenience.  You buy your home and set up your reverse mortgage in a single transaction, avoiding the extra costs and delays of taking out a separate reverse mortgage later.

Expert Insight from Michael Branson, CEO:  “The HECM for Purchase is ideal if you’re downsizing or moving closer to family, it simplifies the move into one transaction.”


Residency and Eligibility

HUD now requires that all HECM borrowers be U.S. citizens or lawful permanent residents.  Borrowers with temporary or non-permanent residency status (such as work or visitor visas) are no longer eligible for FHA-insured reverse mortgages, including the HECM for Purchase program.

If you’re a U.S. citizen or hold a green card, you fully qualify under the current residency rules.

Sign showing HUD-approved property types

The HECM for Purchase program allows a wide range of home types, as long as they meet FHA standards and the property will be your primary residence.

Eligible properties include:

  • Single-family homes
  • Planned Unit Developments (PUDs)
  • 2–4 unit dwellings (you must live in one of the units)
  • HUD-approved condominiums
  • Manufactured homes built after June 15, 1976

If you’re buying new construction, the final Certificate of Occupancy must be issued before closing.

Did You Know?  HUD-approved condos, single-family homes, and 2–4 unit properties qualify.  However, co-ops, homes still under construction, and older manufactured homes (built before June 15, 1976) are not eligible for HECM financing.


Ineligible Properties

Not every home type qualifies for a HECM for Purchase.  HUD limits eligibility to ensure the property meets safety and long-term habitability standards.

Ineligible property types include:

  • Homes still under construction or not yet habitable
  • Mobile or modular homes not set on a permanent foundation
  • Co-ops, boarding houses, or bed-and-breakfast properties
  • New construction without a final Certificate of Occupancy

Important:
Certain manufactured homes may not qualify, particularly those built before 1976 or those that fail to meet HUD manufactured home requirements.


Estimating Your Down Payment

When you buy a home using a HECM for Purchase, you’ll need a larger down payment than with a traditional mortgage, but in exchange, you’ll have no required monthly mortgage payments for as long as you live in the home.

Most borrowers use the equity from the sale of their previous home.  Others combine personal savings, retirement funds, or eligible gifts to meet the requirement.


Acceptable Funding Sources (2025 Update)

HUD now allows several documented, non-repayable sources to help cover your down payment:

  • Proceeds from the sale of your current or prior home
  • Verified savings, retirement, or investment accounts
  • Family gifts, employer assistance, or disaster-relief grants
  • Other non-repayable funds approved by your lender

All funds must be fully documented, typically by wire transfer or cleared check before closing.  Borrowed funds, unsecured loans, and credit-card advances are not permitted.

Expert Insight from Michael Branson, CEO:  “Most borrowers use equity from selling their current home.  This lets them buy their next property without taking on a monthly mortgage payment, and without paying all cash.”

Typical Down Payment Range

The required down payment depends on:

  • Age of the youngest borrower or spouse
  • Current expected interest rate
  • Home price or the 2025 HECM lending limit of $1,209,750, whichever is lower

Did You Know?  Your down payment typically ranges between 40-60% of the purchase price, depending on your age and current interest rates.

2025 HECM Purchase: Down Payment Estimates by Age

Your Age% Down$200,000 Home$400,000 Home$600,000 Home$800,000 Home$1,000,000 Home
6264.9%$129,800$259,600$389,400$519,200$649,000
6562.8%$125,600$251,200$376,800$502,400$628,000
7059.2%$118,400$236,800$355,200$473,600$592,000
7556.4%$112,800$225,600$338,400$451,200$564,000
8052.1%$104,200$208,400$312,600$416,800$521,000
8546.1%$92,200$184,400$276,600$368,800$461,000
9039.5%$79,000$158,000$237,000$316,000$395,000
(Down payment estimate includes closing costs, 2% insurance fee, at 5.75% rate / 5.5% expected rate as of 09/18/2025)

Seller and Third-Party Contributions (HUD Update 16-5)

As of 2025, HUD has updated HECM for Purchase rules to match conventional “forward” mortgage standards.  Now, sellers, agents, and builders can contribute up to 6% of the home’s sales price or appraised value (whichever is lower) toward the buyer’s allowable closing costs and fees.

These contributions can be used for:

  • Origination and lender fees
  • Appraisal and credit-report costs
  • Title and escrow/closing fees
  • Prepaid taxes and insurance
  • Discount points or interest-rate buydowns
  • The initial FHA mortgage insurance premium (MIP)

Note:

  • Typical seller-paid expenses, such as real estate commissions or home-warranty costs, do not count toward the 6% cap.
  • PACE liens: If a seller pays off a Property Assessed Clean Energy (PACE) lien, it’s not treated as a contribution; it’s a required title condition under HUD’s updated rules.

Example of Reverse Mortgage Purchase

Reverse Mortgage Purchase example

Example: A 70-year-old uses a reverse mortgage to buy a $400,000 home.  The required down payment is $182,000 (about 45%).  For illustration, assume a 4% annual home appreciation and an “expected rate” based on a 10-year index.

Under these assumptions, equity could be ~$210,000 in five years and ~$257,000 in ten years without making monthly mortgage payments. If the borrower later moves to assisted care, the loan becomes due.  The home can be sold; any equity above the loan balance belongs to the borrower or heirs.

When that time comes, you can:

  • Pay off the loan and keep the house
  • Sell the home and keep any remaining proceeds
  • Walk away and owe nothing (non-recourse)

Equity outcomes depend on appreciation, interest rates, timing/amount of draws (purchase funds are disbursed at closing), and any voluntary prepayments.

Also see: Ideal Reverse Mortgage Purchase Example


2025 Reverse Mortgage Purchase Rates: Fixed vs. Adjustable

Lending LimitFixed Rate (APR)Adjustable Rate
$1,209,750 (HECM)7.56% (8.06% APR)6.885% (2.125% Margin)
$4,000,000 (Jumbo)8.99% (9.25% APR)9.52% (5.875% Margin)
Note: Fixed APR example: 7.56% + 0.50% MIP =8.06% total interest for a $250,000 loan, including standard closing costs.

2025 Reverse Mortgage Purchase: What You Need to Know at a Glance

Key TopicHow It Works
Who Qualifies?Homebuyers age 62+ who meet HUD’s financial guidelines
Down Payment Needed?Yes – Typically 45–70% of the purchase price depending on age and rates
Monthly Mortgage Payments?No – Just maintain property taxes, insurance, and upkeep
Eligible Property TypesSingle-family homes, HUD-approved condos, 2–4 unit homes (owner-occupied)
Ineligible PropertiesCo-ops, homes under construction, some manufactured homes
Best Funding SourcesProceeds from selling your current home, savings, or eligible family gifts
Benefits of the ProgramOne transaction, no monthly payments, FHA-insured with non-recourse protection
Limitations to ConsiderHigher down payment than traditional loans, upfront/ongoing MIP applies

Pros and Cons of Purchasing with a Reverse Mortgage

The HECM purchase program can be an excellent option to consider during retirement, allowing you to move without monthly mortgage payments.  However, like all loans, there are trade-offs.

Pros & Cons

Pros
  • Government insurance with non-recourse protections (you never owe more than the home’s value at sale).
  • Single transaction: buy the home and set up the reverse mortgage at the same closing.
  • Eliminates required monthly mortgage payments while you enjoy your new home.
Cons
  • Potential downsides for some borrowers; heirs may receive less after the loan is repaid from sale proceeds.
  • Upfront and ongoing MIP plus standard closing costs apply.
  • Not suitable for everyone; compare with alternatives and consult trusted advisors.

Did You Know?  FHA insurance guarantees a purchase HECM so that at the time of maturity, you’ll never owe more than your home’s value, no matter how long you live there or what the market does.

Additional Considerations

Select a real estate agent with experience in reverse-mortgage purchases.  Your originator can help, but an agent who is familiar with HUD rules can streamline the process.


2025 HECM Purchase Changes & Improvements (Summary)

  • 6% seller/agent/builder contribution cap toward allowable borrower costs
  • Expanded down-payment sources: verified gifts, employer assistance, or disaster-relief grants
  • PACE lien payoffs excluded from concession limits
  • Final Certificate of Occupancy required before closing
  • Residency limited to U.S. citizens and permanent residents
  • Trust ownership allowed at closing if FHA-compliant

Frequently Asked Questions

“All Reverse Mortgage flawlessly handled my reverse mortgage purchase, providing clear explanations and great professionalism. They promptly answered my questions and returned calls quickly. I highly recommend them to friends and family.” — John P. (BBB)

Thinking About Buying a Home with a Reverse Mortgage?  We Make It Simple.  With the HECM for Purchase program, you can buy your next home without monthly mortgage payments.  Call (800) 565-1722 or try our reverse mortgage purchase calculator to see how much home you can afford.


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