What is a reverse mortgage purchase?

Reverse mortgage loans are often used by people who want to stay in their homes. Another type of reverse mortgage, called a reverse mortgage for purchase, allows borrowers to buy a new home during the transaction.

You can take out a reverse mortgage and purchase a new home all in one transaction through the reverse mortgage for purchase program, often through the Home Equity Conversion Mortgage (HECM) for purchase program.

For those looking to move into a new home and stay there as they age, the HECM for purchase can be an advantageous program. Additional reverse mortgages are available for purchase from various lenders, each with different specifications.

Understanding the basics

The HECM for Purchase is the most common reverse mortgage borrowers use to purchase new homes. 

Applying for and qualifying for a HECM for Purchase follows the same process as applying for any HECM loan. Most requirements are the same: borrowers must be 62 or older and own their homes outright or have significant equity.

After getting a HECM for Purchase, borrowers must keep the home up to FHA standards, pay property tax, and keep up with homeowners insurance. The main difference between a reverse mortgage for purchase and a regular mortgage is how the home is bought. 

With a reverse mortgage for purchase, the borrower can buy the home in one transaction without making monthly mortgage payments.

The reverse mortgage for purchase product requires the borrower to cover the down payment on the new home purchase, which is significantly more than for a typical single-family home.

They may do this in instances where:

  • They wish to downsize from their current home, which requires extensive maintenance
  • A single-story home is more attractive than the existing home or is more equipped for aging in place
  • They want to relocate to a home that is closer to family

Allowable property types include single-family homes, 2- to 4-unit properties, HUD-approved condos, and planned unit developments. In all cases of new construction, a certificate of occupancy must be in place before the HECM for a purchase transaction.


Eligible property types

  • Single-family homes
  • PUD – planned unit development
  • 2–4-unit dwelling
  • HUD-approved condominiums


Most property types can be purchased in a reverse mortgage, with several exceptions. The home must not be under construction and must be habitable. Co-ops, boarding houses, B&Bs, and newly constructed homes where a Certificate of Occupancy has yet to be issued are ineligible.

Certain types of manufactured homes may not be used. Those built before 1976 and those built since then, but need to comply with Department of Housing and Urban Development standards, won’t fit the bill for a reverse purchase mortgage.



Down payment requirements 

The reverse mortgage for purchase program requires the borrower to cover the down payment on the new home purchase, which is significantly more than for a typical single-family home.  

In many cases, the equity from the sale of the old house can be used for the down payment on the new home. In other cases, the borrower may need to cover the down payment through savings or other means. 

If the value of the old home is less than the down payment required for the new home, the borrower will need to provide the difference in cash. Some gifts and other sources may also be allowed under FHA requirements, such as family gifts from those who do not have a stake in the transaction.

The down payment requirement is based on the following:

Typically, the down payment for a HECM for Purchase is 45-70% of the purchase price. The following table provides examples of down payment requirements for various home prices and borrower ages.


HECM Purchase Down Payment by Age

Sales Price$300,000$400,000$500,000$600,000$700,000
Age Down PaymentDown PaymentDown PaymentDown PaymentDown Payment
*Not an offer to lend. Down payment examples are approximate and include most necessary closing costs such as 2% upfront mortgage insurance & 3rd party closing costs. Interest rate used to arrive at down payment percentages 5.875% (Adjustable CMT 2.125% Margin) as of 11/30/2022.

Request a free ARLO quote for exact down payment and costs associated with the state you are purchasing in as some states charge additional state specific taxes associated with purchase loans.


Today's Reverse Mortgage Purchase Rates

2023 Lending LimitFixed Rate Adjustable Rate
$1,089,3007.180% (8.700% APR)6.885% (2.125 Margin)
$4,000,00010.125% (10.612% APR)11.385% (6.625 Margin)
Example calculation using fixed rate:
7.18% + .50% Monthly MIP = 7.68% in total interest charges. Fixed Rate APR calculated assumes $250,000 loan amount and includes .50% Mortgage Insurance and standard 3rd party closing costs.

Allowable down payment sources

  • Cash on hand (Savings, 401k, etc.)
  • Proceeds from the sale of the home
  • Gift from family

Proceeds from the sale of the previous home and savings are the most common ways for borrowers to meet the down payment requirement. There are other acceptable funding sources under the Federal Housing Administration, which is the insurer for the loan. 

For sources that will work to finance the equity portion of the loan, borrowers can use an earnest money deposit or a withdrawal from a savings account, checking account, or retirement fund. Some forms of gift money are also OK, including gifts from family members, employers, a charity, a government organization interested in home ownership initiatives, or a close friend with a documented interest in the borrower. 

Gifts from someone involved in the transaction, in any way, are not acceptable. Other, less common funding sources, such as collateralized loans, savings bonds, employer assistance programs, and other means, can also be used.



Non-allowable down payment sources

Sweat equity, trade equity, rent credit, and cash from someone benefiting from the reverse mortgage transaction are unacceptable. Cash advances from credit cards are also not accepted.



Example of a reverse purchase mortgage

In this example, we will use a borrower aged 70 years old, using a reverse mortgage for a home purchase with a sales price of $400,000. The required down payment is $182,000, or approximately 45% of the purchase price. 

The down payment includes all upfront mortgage insurance premiums and third-party closing costs. After five years of making no mortgage payments, there is still $210,000 in home equity; after 10 years, there is still $257,000.

Should the borrower decide later to move into an assisted care facility, they may sell the home, where the reverse mortgage balance is then repaid, and the remaining said equity is theirs. Of course, this assumes the home will appreciate at a modest 4%. 

The remaining equity largely depends on the home’s future appreciation and whether you choose to make any repayment to the loan balance.

Also See: Here’s an Ideal Reverse Mortgage Purchase Example

Weighing the Pros and Cons 

The HECM purchase program can be an excellent option for those who want to move during retirement, as it allows them to do so without making monthly mortgage payments.  However, like all loans, there are some pros and cons.

  • For the government-insured HECM for Purchase, borrowers are afforded the same protections and benefits of all HECM loans, including its non-recourse feature, which means when the loan comes due, the borrower does not have to repay more than the home is worth at the time of sale.
  • The product allows borrowers to purchase a new home with a reverse mortgage, all in a single transaction.
  • The HECM for Purchase allows borrowers to eliminate their monthly mortgage payments while they enjoy a new home.
  • Like all mortgages, there can be a downside to reverse mortgages for some borrowers.  When a borrower passes away, the borrower’s heirs may see reduced inheritance after the home’s sale and repayment of the loan.
  • Upfront and ongoing insurance premiums are required to maintain the loan and standard closing costs.
  • A reverse mortgage is only suitable for some, and it’s essential to consult with trusted advisors about the options available and how a reverse mortgage compares.

Other considerations and where to learn more

Another factor that borrowers may want to consider in getting a Reverse Mortgage for Purchase is the real estate agent’s experience with reverse mortgages.

While the mortgage originator can help answer questions along the way, borrowers may want to work with a real estate agent familiar with reverse mortgage transactions.

Purchase FAQs


Can you get a reverse mortgage on a purchase?

Yes. The reverse mortgage has been available for purchase transactions since 2008. FHA implemented this to eliminate the need for borrowers interested in buying a new home to do two transactions.

How does a reverse mortgage purchase work?

A reverse mortgage for purchase works similarly to a standard reverse mortgage. The loan amount is calculated using the age of the youngest borrower/spouse and the interest rate. The borrower then brings in funds at closing to cover the difference.

How much is the down payment required on a reverse mortgage purchase?

The amount of down payment required will depend on the borrower’s loan-to-value ratio. This ratio is determined by the age of the youngest borrower/spouse and the interest rate. For example, a 62-year-old borrower may be eligible for a loan-to-value percentage of ~36%. A 92+-year-old borrower may be eligible for a ratio of ~65%. Curious about your down payment?  Try our reverse mortgage for purchase calculator.

How is a reverse mortgage purchase different from a traditional mortgage?

A reverse mortgage requires a larger down payment than a traditional loan purchase. This is due to a reverse mortgage not requiring any monthly mortgage payment. Additionally, a reverse mortgage purchase follows FHA guidelines with more regulations related to fees allowed to be paid by the seller, concessions from the seller, and property requirements.

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