How a Reverse Mortgage Purchase Works – Basics, Down Payment & Eligibility

March 30, 2022 By Michael Branson 64 comments

Reading time: 8.5 min

Table of Contents

What is a reverse mortgage purchase?
Understanding the basics
Eligible property types
Down payment requirements
HECM Purchase Down Payment by Age
Today's Reverse Mortgage Purchase Rates
Allowable down payment sources
Non-allowable down payment sources
Example of a purchase reverse mortgage
Weighing the Pros and Cons
Purchase FAQs

What is a reverse mortgage purchase?

Reverse mortgage loans are often used by people who want to remain in their existing homes. But there is another type of reverse mortgage that comes with all the same benefits, except it allows the borrower to buy a new home during the transaction using a reverse mortgage for home purchase loan.

Through a Reverse mortgage for Purchase, or through the Home Equity Conversion Mortgage (HECM) for Purchase program, borrowers take out a reverse mortgage and purchase a new home all within a single transaction.

For those looking to move into a new home in which they plan to age in place, the HECM for Purchase can be a very useful product. There are also additional Reverse Mortgage for Purchase products available in today’s market with various specifications depending on the lender.

Understanding the basics

The HECM for Purchase is the most common among reverse mortgages used by borrowers to purchase new homes. Applying for and qualifying for a HECM for Purchase follows the same process as applying for any HECM loan and most of the requirements are the same: borrowers must be 62 or older and they must own their homes outright or have a significant amount of equity.

Once they get a HECM for Purchase, borrowers must maintain the home to Federal Housing Administration (FHA) standards, and they must continue to pay property tax and homeowners insurance. The program is administered by the Department of Housing and Urban Development (HUD).

Where the Reverse Mortgage for Purchase differs is in the closing transaction for buying the new home. Within a single transaction, the borrower can purchase a new home with the reverse mortgage, essentially eliminating monthly mortgage payments from the new home purchase.

As in any reverse mortgage, the interest accrues over time and the loan must be repaid when the borrower passes away or moves from the home permanently.

While most borrowers utilize the reverse mortgage product to remain in the home they currently own, a proportion of borrowers use the Reverse Mortgage for purchase to relocate. They may do this in instances where:

They wish to downsize from the 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, there must be a certificate of occupancy in place prior to the HECM for purchase transaction.

Eligible property types

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

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

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

Down payment requirements

The Reverse Mortgage for Purchase product has one key requirement: the borrower must be able to cover the down payment on the new home purchase as part of the product. This requirement is significantly more than the down payments required for standard single family home purchases.

In many instances, the equity from the sale of the former home can be used to cover the down payment. In other instances, the borrowers may cover the down payment through savings or other means, or they must provide that cash to make up the difference between the former home value and the new home’s down payment requirement, if there is one.

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 age of the youngest borrower
Current interest rates
The price of the new home, or the HECM lending limit of $970,800

Typically, the down payment required is roughly 50% of the purchase price of the new home. The following table provides examples of down payment requirements for borrowers utilizing a HECM for Purchase 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 Payment	Down Payment	Down Payment	Down Payment	Down Payment
62	$154,496.49	$203,601.49	$252,601.49	$301,601.49	$350,601.49
65	$148,901.49	$196,001.49	$243,101.49	$290,201.49	$337,301.49
70	$138,701.49	$182,401.49	$226,101.49	$269,801.49	$313,501.49
75	$129,401.49	$170,001.49	$210,601.49	$251,201.49	$291,801.49
80	$118,601.49	$155,601.49	$192,601.49	$229,601.49	$266,601.49
85	$105,401.49	$138,001.49	$170,601.49	$203,201.49	$235,801.49
90	$91,601.49	$119,601.49	$147,601.49	$175,601.49	$203,601.49

*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 2.36% (Adjustable CMT 2.125% Margin) as of 03/05/2021.

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

2022 Lending Limit	Fixed Rate	Adjustable Rate
$970,800	3.68% (4.68% APR)	3.02%
$4,000,000	5.25% (5.375% APR)	6.18%

Example calculation using fixed rate:
3.06% + .50% Monthly MIP = 3.56% 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 sale of 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 sources of funding 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, government organization with an interest in home ownership initiatives, or a close friend who has a documented interest in the borrower.

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

Non-allowable down payment sources

Those that are NOT acceptable include sweat equity, trade equity, rent credit and cash (or equivalent) from someone benefiting from the reverse mortgage transaction, or a third party that is reimbursed by someone benefiting from it.

Cash advances from credit cards are also not accepted.

Example of a purchase reverse mortgage

In this example, we will use a borrower aged 70 years old, using a reverse mortgage for 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 premium and third-party closing costs. After five years making no mortgage payments there is still $210,000 in home equity, after 10 years there is still $257,000.

Should the borrower decide at a later time that he/she needs 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%. Remaining equity largely depends on the home’s future appreciation and whether you choose to make any type of repayment to the loan balance.

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

Weighing the Pros and Cons

The HECM for Purchase can be a highly beneficial tool for those who find themselves wanting to move to a new home during retirement, in that it essentially allows them to do so without making monthly mortgage payments toward repaying the loan.

However, like all loans, there are some pros and cons.

Pros

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.

Cons

Like all reverse mortgages there can be downsides for some borrowers. In instances where a borrower passes away, the borrowers’ heirs may see reduced inheritance after the sale of the home and repayment of the loan.
There are upfront and ongoing insurance premiums required to maintain the loan, in addition to standard closing costs.
A reverse mortgage is simply not right for everyone, and it’s important to consult with trusted advisors as to the options available and how a reverse mortgage compares.

Other considerations and where to learn more

One additional 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 who is 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 from having to do two transactions.

How does a reverse mortgage purchase work?

A reverse mortgage for purchase works very similar to a standard reverse mortgage. The loan amount calculations are the same as a regular reverse in that it uses the age of the youngest borrower/spouse and the interest rate to determine the loan to value that can be borrowed of the purchase price or home value (whichever is less). The borrower then brings in funds at closing to cover the difference.

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

The amount of down payment required will depend on the loan to value that the borrower is eligible for. The loan to value is determined by the age of the youngest borrower/spouse and the interest rate. Loan to values for a 62-year-old start at around 50% and can go as high as 75% for a 92+ year old.

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

A reverse mortgage purchase differs from a traditional loan purchase in a couple areas. A reverse mortgage loan will require a larger down payment in most instances than traditional loans, and can go as high as 95% loan to value. Additionally, a reverse mortgage purchase follows FHA guidelines that has more regulations related to fees allowed to be paid by the seller and concessions from the seller.

ARLO recommends these helpful resources:

Purchase Reverse Mortgage Purchase FAQs (Updated 2022)
Read about our own HECM Purchase client success story in Kiplinger’s Retirement Report

America's #1 Rated Reverse Lender Celebrating 17 Years of Excellence.

TALK TO OUR HUMAN EXPERTS TOLL FREE: 800-565-1722

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About the Author, Michael G. Branson | Mike@allreverse.com

Michael G. Branson CEO, All Reverse Mortgage, Inc. and moderator of ARLO™ has 40 years of experience in the mortgage banking industry. He has devoted the past 17 years to reverse mortgages exclusively.

64 Comments on this Article

Trung
January 11th, 2022

For a reverse mortgage to buy a house (HECM) - does the appraisal need to be near the asking price or just over the amount the loan is for?
Reply to Trung
- ARLO™
  January 11th, 2022
  
  Hello Trung,
  
  HUD uses the same process on the reverse mortgage for purchase forward lenders use. They will use the purchase price or the appraised value, whichever is less, to determine your benefits (loan amount).
  So, if the appraisal is at or above the sales price, then the loan amount will be a percentage of the sales price (not the higher appraised value if it is above) depending on your age as determined by the HUD calculator. This means that if the appraised value is $100,000 and the sales price is $75,000, the loan amount will be based on the sales price of $75,000 despite the higher appraised value.
  If the opposite were true, the appraisal comes in at $75,000 and the sales price is $100,000, HUD would not only not insure a loan on the $100,000 purchase price, but lenders would also not complete the transaction as it would be deemed an abusive transaction to the senior (selling a home to them at $25,000 over market value).
  Reply to ARLO
Roberta E.
August 10th, 2021

If I want to buy a piece of property using the reverse mortgage loan how does that work?
Reply to Roberta
- ARLO™
  August 10th, 2021
  
  Hi Roberta,
  
  Just like any other loan. You find the home you want to buy and instead of using another type of loan, you use the reverse mortgage proceeds plus your down payment to close the transaction.
  If you would like to know more about the amount of down payment you would need for a purchase transaction, you should contact us with the property address (or at least the zip code in which you are looking), the approximate price you want to pay and from that we can tell you the most probably costs and how much you will need for a down payment.
  Because reverse mortgage benefits vary by age and costs vary by region/location, people closing purchases in areas where the state and counties charge more for documentary transfer taxes, etc. will see higher closing costs than areas that do not have these fees.
  You need to figure that you will probably be putting around 50% down on the home but that may change if you are older or if the fees are higher but that is a good starting point. We can give you a solid number with some actual information.
  
  Once you know how much money you need for down payment and closing costs, you shop for your home and make your offer just as you would with any other loan. The one difference is that you need to be sure that the type of property you are looking to buy is acceptable to the HUD program.
  Condominiums are not very feasible if they are not already on the HUD approved list and manufactured homes are difficult if there are not multiple recent sales of similar properties in the area.
  But the best thing to do is to speak with a reverse mortgage Loan Officer to determine if the program will accommodate the type of property you wish to buy before you even start looking.
  Reply to ARLO
Ron
March 10th, 2021

Hi Jeff,

When I retire and move back to the states, I am considering buying a home with a reverse mortgage for purchase loan. I find a lot of information online about the specifics of the program, but I worry that realtors in areas I'd like to move to might not support such a purchase. How can I find realtors that understand HECM for purchase and can work with me to successfully buy a house? I am particularly interested in Newark, Delaware; Las Vegas, Nevada; Ocala, Florida; and Denver or Grand Junction, Colorado.

Thank you!
Reply to Ron
- ARLO™
  March 16th, 2021
  
  Hello Ron,
  
  There is a wealth of information available to real estate professionals from HUD, industry sources and HUD approved lenders, but there are still a lot of individuals who just do not understand the program or even worse, still harbor many of the misconceptions.
  The best thing to do is simply call a few offices in the area that you are considering a move to and ask if they have anyone in the office who has worked with purchase reverse mortgages.
  Your possible location list is so expansive, on one individual will be able to assist you in every location so it is going to take some research on your part. The time and effort you spend finding someone who understands the program is well worth it as an informed agent who has worked with the program will know what property types will meet the program requirements and is a very valuable tool.
  The program is not extremely restrictive but does have definite requirements. Knowledge of those HUD rules and requirements can put you way ahead of the game.
  Reply to ARLO
Lee B.
February 9th, 2021

Can I reverse mortgage a home I purchase for $400,000 and put 20% down and reverse mortgage the balance?
Reply to Lee
- ARLO™
  February 9th, 2021
  
  Hello Lee,
  
  Because you never have to make a payment on the home for as long as you live in the property, the equity requirement is higher than 20% and the amount is based on your age.
  The older you are, the higher the loan amount the program will allow (the theory being a 62-year-old borrower will most likely accrue more interest over a lifetime than an 85-year-old borrower).
  But having said that, while if you just bought the home, 20% equity would not work, if you bought the home several years ago, with appreciation, you may now have the required equity position to get the loan without having to reduce your current mortgage balance (you can always get the loan, the question is can you get it without having to pay down your current mortgage with other cash).
  
  The only way to know for sure is to visit our HECM purchase calculator. You do not need to input personal information like a social security number but it does need your age so it can calculate your benefits.
  This will tell you how much you would receive based on the value of your home, your age and the programs available. If you are not sure about your current value, let us know and we may be able to give you an educated number based on sales in your area.
  Only an appraisal will tell you for sure what value can be used for the loan, but if there is good sales data available, we can usually get close enough to tell you what you might expect to receive on the loan.
  Reply to ARLO
Sheila
January 22nd, 2021

If I want to buy a house and use a reverse mortgage how much will I have to put down? I am guessing at least 50%, and what is the max house price I can buy?
Reply to Sheila
- ARLO™
  January 22nd, 2021
  
  Hello Sheila,
  The amount depends on your age. The older you are, the more the reverse mortgage will lend. At 62 you start about 52% that the loan will lend (minus costs) and goes up from there. And there is no maximum you can buy, but if you want to keep your loan a HUD reverse mortgage, the maximum lending limit is $822,350.
  This means you can buy a house worth more, but your max loan amount will be based on the purchase price, the appraised value or the maximum HUD lending limit whichever is less. So if you buy a home for which the purchase price and the appraised value is $900,000, your 52% (if you are 62 years old) would be based on $822,350 and the you would need to bring in the rest of the cash to close.
  If you are looking at substantially more expensive properties, you would probably be better served with a jumbo or proprietary reverse mortgage program. Their lending terms are lower as a percentage of the value based on age, but they go all the way to $4,000,000 loan amounts so for many higher valued homes they still give borrowers access to more funds than the HUD HECM program.
  Reply to ARLO
  - Cathy H.
    April 25th, 2021
    
    I thought it was 62% down for a 62 year old...
    Reply to Cathy
    - ARLO™
      May 4th, 2021
      
      Hi Cathy,
      
      I cannot give you a definite percentage that you will be required to put down because the reverse mortgage program uses property value or HUD lending limit, whichever is less, borrower age and interest rates to determine a benefit or Principal Limit amount.
      
      For borrowers age 62, that is 52.4% or 47.6% down (not including costs) But that assumes the interest rate is at or below the HUD floor, the borrower will not be 63 within 6 months and the property purchase price and appraised value are both the same and do not exceed the HUD lending limit of $970,800.
      
      If the borrower is closer to 63, then you receive a little more money. If the interest rate is above the HUD floor of 3%, then you would receive less, and the amount less would depend on how far the rate is above 3% (or the floor in effect that the time if HUD changes that number as they have done in the past).
      
      Also, since there is no greater benefit for homes valued above $970,800, if you purchase a home at $900,000, the Principal Limit (the loan amount) will be based on $970,800 or the appraised value whichever is less and then your total percentage of loan amount would be lower than 52.4%.
      
      The percentages of the principal limits are stated on the HUD website on their published principal limit factor tables at https://www.hud.gov/sites/documents/PLF_TABLES_18-99.XLS. However, it can be confusing for most people who are not reverse mortgage originators to be able to decipher the HUD limits. Also, as I started by saying, this does not include the costs of the loan and so it only tells part of the story.
      
      I strongly suggest that you go to our HECM purchase calculator and feed a small amount of information and the calculator will give you an accurate quote of the programs and costs for not only your age, but also the area in which you are looking to purchase.
      
      Some states (Florida being one of them) have very high closing costs with intangible taxes and recording fees and this may also play a big role in your final costs to purchase and therefore what price range you should be considering.
      Reply to ARLO
Stephen
December 15th, 2020

Can a purchase a multifamily with a reverse mortgage and live in one of the units? Could keep my current home if my ex-wife still lives in it? We co-own it.
Reply to Stephen
- ARLO™
  December 15th, 2020
  
  Hello Stephen,
  
  HUD does allow up to 4 units in the reverse mortgage program as long as the property is owner occupied.
  Your question though about keeping a single family and moving into a multiple family residence raises a lot of red flags.
  The single largest incidence of fraud on the reverse mortgage program is occupancy fraud. Borrowers who claim they will occupy the property and never do or who move out and do not tell the lender.
  Some goes as far as to continue to sign the annual certification stating they live in the home and have since moved or never did occupy.
  HUD and lenders both know this is a big issue with the program and if the occupancy is questionable or does not seem to make sense in the eyes of the underwriter, you may not find a lender willing to approve the loan.
  Also, there may be additional occupancy inspections scheduled if the loan does close and you need to be aware that if it is determined that you are not living in the property, the lender would call the loan due and payable and if you are unable to repay the loan at that time, the lender would begin foreclosure actions.
  I am not saying this is your plan, but others have tried it and when you have an individual moving from a single family residence to multiple family units and not selling the existing property, it is certain additional steps will be taking to ensure occupancy.
  Reply to ARLO
Daisy
November 24th, 2020

Hi Arlo,

We closed our home using a purchase reverse mortgage, October 2020 in Texas. Our Deed only has our names listed. Our marital status and vesting of joint tenancy with rights of survivorship were omitted. We did not catch it until we received the recorded Warranty Deed 10 days after closing. We were told by the mortgage company that the new servicer can call our note if we get the vesting corrected. Therefore, they will not produce a Corrective Deed. In addition, they said "Too bad your loan is closed." How is that possible? All homes we owned over the years had this vesting on conventional loans. We feel so abandoned. :(
Reply to Daisy
- ARLO™
  November 24th, 2020
  
  Hello Daisy,
  
  Firstly, I believe that is just wrong.
  Your loan documents specifically state that you can add others to title, or you can change the title to an approved family trust as long as at least one original borrower remains on title and still lives in the property as your primary residence.
  Your documents say nothing about the vesting and lenders only have the rights in your property that you give them when you sign your agreements/loan documents. I cannot say for sure, but I believe your originator may just not be aware of how to accomplish this and so they are taking the easy way out for them.
  If you want the Deed corrected to include your marital status and right of survivorship, I suggest you have the Deed to correct the vesting drawn as you wish it to be and send a copy to the servicing department along with your explanation that you are not changing the owners, that you both still occupy the property as your primary residence and that you are simply correcting the vesting.
  I would copy the title company who first handled the purchase transaction as well referencing the original title order. Ask them to specifically authorize the title company to record the Deed to correct the vesting. This accomplishes several things.
  Firstly, you will not have an "uninsured Deed" that could present issues later. Secondly, you will have the lender's acknowledgment and authorization before you ever record the Deed so if there is further contention, you can resolve it before any change of title is recorded.
  I do not believe there will be an issue, but some people look for problems where there are none or may need some convincing. Finally, by having the original title company from the home purchase involved in the recording of the new Deed, they can be sure that they do it so that it does not trigger any reassessments due to change of ownership that might occur if it is not done correctly.
  Once the lender approves the Deed to correct the vesting, request the title company to record it and send them the original Deed for recording.
  
  If all of this fails and the lender digs their heels in (which I cannot see why they would), then you may need to consult with an attorney to determine the effects of the omission in the first place (whether or not having the vesting changed really will or could make any difference later) and to have them become involved by contacting the lender on your behalf if needed.
  I am not an attorney and I do not know what legal ramifications could occur, if any, with the omission of the wording you seek to add or if it is a totally moot point. I do know that Texas has strong heirship laws and so if you cannot get the changes you seek, you really should speak with an attorney to determine any possible effect that could have on your title, yourselves or your heirs later.
  Reply to ARLO
ARLO™
November 2nd, 2020

My partner and I are looking at homes in Brookings, Oregon. I am 73, she is 62. Can we use a reverse mortgage to purchase? What is the minim down we need? If the house appraises for more than the purchase price, can we consider that as part of the equity? We are currently looking at $200,000 purchase price with appraisal coming in at around $240,000. Thanks!
Reply to ARLO
- ARLO™
  November 2nd, 2020
  
  Hello Pat,
  
  Yes, you can use the reverse mortgage for purchase program and as long as both of you occupy the property as your primary residence, you will both be covered by the loan for as long as you live in the property and abide by the loan terms.
  The loan will be based on the lower of the appraised value or the purchase price so if the home appraises for more, it will still be based on the purchase price.
  Any equity in the home because of the higher appraised value is yours, you own the home.
  To determine how much money you would qualify to receive, you really need to visit our online calculator as different programs also affect available proceeds.
  You can find the calculator at the top of this page.
  Reply to ARLO
Ken
September 4th, 2020

A married couple has a reverse mortgage with no equity left. Can one move out and buy another house as a reverse mortgage for purchase as their primary residence and leave the trailing partner in the original reverse mortgage house?
Reply to Ken
- ARLO™
  September 4th, 2020
  
  Hello Ken,
  
  If both names are on the current loan, neither borrower can obtain a new reverse mortgage until that loan has been settled with no shortage to HUD on the loan.
  You can both remain in the home for life regardless of the equity position so HUD will not grant a second reverse mortgage on another property until this one is paid in full and any shortfall has been repaid.
  If you both pass and there is a shortage on the sale of the home so that it will not cover the amount owed, you or your heirs will not owe any more money to the lender but if you leave the home prior to that time, HUD will not allow you to get another loan unless that first loan is paid in full with no losses.
  Reply to ARLO
Mark
June 15th, 2020

My parents are 75 years old. They bought a new home last year, which they financed with a Fannie-backed mortgage. but the location no longer works for them and they need to move again. They would like to rent their current home and they have a renter lined up. For their new primary residence, they would like to use a reverse mortgage HECM to purchase it sine rates are so low. They have enough saved for a down payment. Would they be able to buy their new primary residence with a reverse mortgage?
Reply to Mark
- ARLO™
  June 15th, 2020
  
  Hello Mark,
  
  If they qualify under the HUD financial assessment guidelines, use they can. The underwriter will look at the occupancy to be sure it makes sense that they would occupy the new property as their primary residence but if it makes sense and they qualify, there should be no issues.
  Reply to ARLO
Joan
May 26th, 2020

Hello ARLO,

I am a healthy and active eighty-year-old renting in Sedona, Arizona, currently paying $1235 per month. My landlord is raising the rent $345.

My monthly income is a little over $2,000, most of which is Social Security and a federal pension annuity, plus money from acting and an at-home editing and transcription business.
I have $30,000 in savings, a good credit score and no debt.

I want to learn the maximum I can qualify for with an HECM purchase loan. How do I go about this?
Reply to Joan
- ARLO™
  May 26th, 2020
  
  Hello Joan,
  
  Your income is not a problem. Under the residual income method of qualification that HUD uses, you have ample residual income to qualify for any home as long as you still have about $590.00 per month left to live on after pay all your obligations which include your home costs and any debts.
  Since you have no debts, this would be your taxes, insurance and a 14 cents per square foot utility and maintenance factor for the home (on a 2,000 square foot home that would be $280 per month).
  Even if your taxes were $600 per month, your insurance another $150 per month and your utility/maintenance factor $280 per month, your total obligations would be $1,030 per month giving you just under $1,000 residual income (at $2,000 per month total income) and that would qualify you from an income standpoint because you need $590.00.
  
  Where you will find you have a problem is with the down payment requirement. Because you can live in the home for life with no payments required, the down payment will be higher than it looks like you have available (plus costs). At age 80, the program will lend 64.2% of the home's value.
  Taking a quick look at homes currently listed in Sedona, other than manufactured homes that often do not meet HUD requirements, I do not see any that are currently listed for less than $155,000 which is a small condo and I do not know if the condo project is approved. That would be a down payment of approximately $55,500 plus costs.
  
  If you look at manufactured homes or condominiums, you need to remember there are additional requirements that the properties must meet to be eligible for HUD financing.
  Considering your liquidity is $30,000, you would really need to keep your top purchase price at or below about $57,000 to be able to put down the required down payment of $20,406 and pay the costs associated with the loan and closing the sale.
  You may be able to tweak these numbers if you find a property with a seller willing to pick up some of the closing costs but even then, the price of the home would not rise drastically.
  Reply to ARLO
Wanda M.
May 19th, 2020

Legally blind senior moving from Florida need assistant living facility. She has a reverse on her home. Can she purchase a home in Georgia using reverse mortgage?
Reply to Wanda
- ARLO™
  May 19th, 2020
  
  Hello Wanda,
  
  If she sells her home and pays off the current reverse mortgage with no losses to HUD, then yes, she is eligible for another reverse mortgage on her next home. Not sure how that will work though if you say she needs to move into an assisted living facility.
  To be eligible, she must occupy the property as her primary residence and if she moves into an assisted living facility, the home will not qualify as her primary residence.
  Reply to ARLO
Margaret A.
May 18th, 2020

How can I use a permanent life insurance policy to get the cash necessary for the down payment on HECM for purchase?
Reply to Margaret
- ARLO™
  May 18th, 2020
  
  Hello Margaret,
  
  If you sell the policy or withdraw funds built up and available to you, you would just need to show the terms of the sale or the withdrawal (the paperwork showing that it is money that belongs to you and not borrowed) and the receipt of the funds through the deposit in your account.
  You could not borrow against the policy as you may not use borrowed funds as the source of the down payment.
  Reply to ARLO
Lisa L.
May 15th, 2020

Hi once you do a reverse mortgage with purchase, can you then sell that new house and if so when? Are there time constraints or limitations?
Reply to Lisa
- ARLO™
  May 17th, 2020
  
  Hello Lisa,
  There is never a prepayment penalty and the home is yours, you can do with it as you please. If you sell the home and there is no loss to HUD on the first transaction, you are still eligible for another reverse mortgage on a different property if that is your choice. If HUD was required to pay a claim as a result of your choosing to leave early (which is highly unlikely if you sell soon after you buy), you would not be eligible for another reverse mortgage until the loss was repaid on the first loan.
  Reply to ARLO
Steve M.
January 5th, 2020

My dad recently passed away. My mom because of her age was not put on the title. Because of finances she is gonna have to sell the home. The house has about $15,000 equity. How does she figure if she will get any of it?
Reply to Steve
- ARLO™
  January 9th, 2020
  
  If she is the owner of the property now, she needs to sell the home and repay the outstanding loan. Everything above and beyond the loan repayment belongs to her. If she has not transferred title yet or your dad did not add her to title before he passed, that is her first priority as she cannot sell a property for which she does not hold title. She might also need to go through probate so she should look into this as soon as possible.
  Reply to ARLO
Sam J.
November 13th, 2019

My wife is considering purchasing a home using the reverse mortgage. I do not wish to participate as an owner and do not wish to be on the loan or the property title. Can my wife use a reverse mortgage as the sole owner of the home?
Reply to Sam
- ARLO™
  November 13th, 2019
  
  Hello Sam,
  
  Assuming you do not live in a state such as Texas where they do not allow a non-borrowing spouse on a reverse mortgage, you can be an eligible non-borrowing spouse on a reverse mortgage purchase and can subsequently become ineligible simply by not meeting the reverse mortgage criteria for spouses but cannot refuse to participate in the loan in any way.
  Since you are married, you would still have to attend the counseling, there are some documents you still would sign and later if you did not occupy, etc. you would become ineligible. You don't even have to be on title at the start but that does not change the counseling and the fact that you start as an eligible non-borrowing spouse to start the loan.
  Reply to ARLO
Lynn
August 25th, 2019

If you are co borrowers and separate and one buys a new house, does the reverse mortgage become due if the other stays in the reverse house? Or when it gets sold?
Reply to Lynn
- ARLO™
  August 25th, 2019
  
  Hello Lynn,
  The loan is still in good standing and not due and payable if at least one original borrower is still living in the property as their primary residence.
  Reply to ARLO
Dianne S.
August 19th, 2019

Looking to buy with reverse mortgage in the $159k range. What percentage will be loaned?
Reply to Dianne
- ARLO™
  August 19th, 2019
  
  Hello Dianne,
  
  That depends on a few factors including interest rates and the youngest borrower's age. What I can tell you though is that with the recent downturn in rates, now is a great time to be buying!
  You can receive the maximum amount with the reverse mortgage available under the program at this time as the rates have fallen below the "floor", meaning borrowers are not currently losing a portion of their available proceeds due to higher rates. To know exactly what you can expect to receive based on your parameters, you should visit our H4P calculator.
  You can see what the real time costs are in your area and also what programs are available to you without any hassle or any obligation (keep in mind with a purchase, you and the seller choose the service providers for closing, title, etc. so the fees may vary a little and we have no way of knowing all the fees for every provider you may choose, but they will be close).
  Reply to ARLO
C. Tiep
May 29th, 2019

This is a lot to process, since we are considering a HECM for purchase, I would like to know the cost of the mortgage insurance premium. I assume it is a per 100K or something similar.
Reply to C.
- ARLO™
  May 29th, 2019
  
  Like most insurance policies, the Mortgage Insurance Premium (MIP) has two components. The Up-Front MIP, or UFMIP, is 2% of the property value or the HUD maximum lending limit, whichever is less. The current HUD maximum value is $765,600. Borrowers whose property value exceeds this limit are still capped at the same UFMIP as borrowers who have a value of $765,600 on the HUD program and borrowers whose property values are less would pay 2% of the actual value.
  The annual renewal is determined by the outstanding loan balance and it is .5% of the outstanding loan balance. This means that since borrowers who borrower more money and carry a larger balance are a higher risk, their annual renewal will be higher than borrowers who carry a smaller balance since the renewal is determined as a percentage of the balance owed.
  Reply to ARLO
Peter G.
May 6th, 2019

Can we purchase a home using a reverse mortgage? We are looking to buy one, and do not have a existing mortgage.
Reply to Peter
- ARLO™
  May 6th, 2019
  
  Hi Peter,
  
  Yes, you can purchase using a reverse mortgage. If you are saying that you own a home now and have no mortgage and intend to keep that home, you need to know that the new home must be your primary residence and you would have to qualify with the expenses of both homes.
  The lender would want to see that there is a good reason for the new home purchase and that the intended occupancy is well-documented and that it is not a second home or a non-owner-occupied property, otherwise it would not qualify. If you are selling your current home, that would not be an issue.
  If you would like to see what you can qualify for in your chosen area, simply go to our online purchase calculator to check out the costs and all the information for your circumstances in real time!
  Reply to ARLO
Joe
April 28th, 2019

I am 70 years old; I would like to purchase a condo for $220,000 and do a reverse mortgage at the same time. The building is not FHA approved so I don't qualify for a HECM reverse mortgage. I had planned on paying 5% down and finance with MIP. What would it take to purchase with a reverse mortgage? Is there a certain amount of equity needed to qualify for a reverse mortgage? If I pay $50,000 down to have equity, how much if any would I get back after completing the reverse mortgage process?
Reply to Joe
- ARLO™
  April 28th, 2019
  
  Hello Joe,
  
  A reverse mortgage will only give you about half the value of the home so you would have to have more than $100,000 to be able to purchase with a reverse mortgage. Because you never have to make a payment while living there, the reverse mortgage requires a substantial down payment. The project would also have to be HUD/FHA approved in order to be eligible, I am not aware of any proprietary reverse mortgage that would accept a condo at that value currently that is not in a HUD approved project.
  Reply to ARLO
Logan
April 24th, 2019

My friend a d I purchased a home together using the HECM Reverse Mortgage for purchase loan. 2 yes later she wants out, but I don't. What would be the options?
Reply to Logan
- ARLO™
  April 24th, 2019
  
  Hello Logan,
  You have the same options as with any other loan. If at least one original borrower remains in the home, the loan is fine, so you just need to determine how the two of you wish to proceed. If she has cash in the transaction and wants to be repaid, that might be tough for you to repay her if you don't have the funds available.
  You both also must understand that if this loan remains open, she is not eligible for another reverse mortgage. You can look into refinancing the existing mortgage with a new loan in just your name to release her completely, but that does not eliminate and need to repay her if you owe her for initial down payment participation (minus any her portion of interest that accrued while she lived in the home and plus any appreciation that would be her portion I assume).
  If you have no other options, a sale of the property may be your only option which would require you to seek another property for which you could qualify on your own. You could once again use a reverse mortgage at that time since the first would be repaid with no losses.
  Reply to ARLO
Mary
March 4th, 2019

How much is the down payment using a reverse mortgage purchase on $500,000 property?
Reply to Mary
- ARLO™
  March 4th, 2019
  
  Hi Mary,
  
  That depends on a few issues. The youngest borrower's age, the location of the property and the costs in the area will have a big effect on those numbers. Fortunately, though, we would be very happy to go over those numbers with you or we have an online calculator that will give you real-time numbers based on your information.
  Reply to ARLO
Kay
August 11th, 2013

Just wondering,

My grandma is the last one alive. My dad and his siblings And gpa have all passed.
She has property with a reverse mort.
My cousins are trying to squeeze her, but i dont want to pry and ask her if they can get the property? Cause they sure dont act like they know. Anyway, i dont want the property- its a lot to maintain and i dont like my hometown. But id like to know if it can be bought?

thanks
Reply to Kay
- ARLO™
  August 14th, 2013
  
  Hi Kay,
  The property always belongs to your Grandmother. When she passes, then the title will pass in accordance with whatever provisions she has put into place. Whoever is her heir(s) and receives the property, will have the option of paying off the loan and keeping the property, selling it and keeping the equity or if there is no equity remaining, they may elect to let the lender sell it and they will have no further liability - regardless of how much is owed and how much the property can sell for.
  If the heirs wish to keep the property and the outstanding balance is higher than the property's current value, then the heirs can pay off just 95% of the current market value if that is less than the amount owed and still keep the home. They would not have to "buy it" as you grandmother never lost title to the property as such, her heirs would also already own it.
  Reply to ARLO
Bridget
July 22nd, 2013

Hello I would like to purchase my grandmothers home with reverse mortgage. She has moved into nursing home and will no longer be able to go back into her home. I wanted to be able to keep the home but was told I had to do as an investment property and put 20% down payment. I don't have that type of money but I know I can mortgage the home. It only appraises at $45000. I really hate to see my grandma house foreclosed. She has lived to be 102 and out live what she was hoping to leave to her family. We tried to keep her in home therefore we did reverse mortgage but that money ran out with the cost of someone coming to in take care of her. Any advise on who can help with this? Thanks
Reply to Bridget
- ARLO™
  August 14th, 2013
  
  Hi Bridget,
  I'm not sure I can help with this - your real question is what can you do about financing the home in your name. You don't have to "buy" the house, your grandmother still owns it so it would be up to her to Deed the property to you if that is her desire. From there, the question would just be what type of financing for which you would qualify and what that lender's requirements would be.
  I'm sorry, I don't work with forward loans so I do not know what would be available or for what you should apply, especially if you do not intend to occupy the home but I would encourage you to contact some local lenders and inquire what lending programs they have available. Just remember that you would not be "buying" the home since you do not intend to put a down payment down.
  Reply to ARLO
Jeanne' m. Hurney
May 20th, 2013

All very informative..I am 72 May 1941...I am seeking to purchase a house in Florida..where I live.. I am not clear what process...application..etc I need to proceed..and be ready when I find the house I desire...Do realitors ..selling agents not like to deal with this process?

I had put a deposit on a home...the realitor took another buyer and never responded to our offer....the prop[erty was near me and I followed it...The selling agent would not get back to my realetor.. I've wondered what I need to do to be ready...so my offer is taken seriously.....Can I have an agent process the purchase ........the house bI desire is a neighbor's....We did not get along ....I don't want that issue to cloud the possibility of purchase........I need a home in an area in demand......I have a husband with cancer and am trying to figure this out..Your help would be appreciated..Thank you
Reply to Jeanne'
- ARLO™
  June 4th, 2013
  
  Hi Jeanne,
  This is a lot to cover here so let me just say that you can get a reverse mortgage to purchase a home. Due to the program though, there really isn't a lot of "prequalification" that can be done. We can run your information through the calculator and determine your benefits and can even run credit verify that you have the necessary assets to close the loan, but in the end, so much of the HUD reverse mortgage lending process will also revolve around the property you choose and the program requirements for terms of the purchase, and HUD's program parameters at the time you are ready to proceed, that the prequalification is not really completely possible. Some Realtors are not familiar with the program and so they do not present offers from reverse mortgage buyers in a very good light to sellers. Some sellers shy away from the offers because they simply don't understand the program and people naturally avoid things they don't understand.
  When done correctly, the loans can be closed as quickly as regular forward loans but there are many rules you have to follow that are not typical of forward loans. This does not mean that the loan is not a very good vehicle for seniors to finance the purchase of a home, it just means that there may be a lot of extra education required in the beginning. We have been able to help several buyers simply by talking with prospective selling agents and in more than one case, sellers themselves. One selling agent even became a big proponent of purchase reverse loans after he went through the entire process. You may want to try to get them to learn more about the program and process, it just might help.
  Reply to ARLO
Christine Ballard
February 7th, 2013

Is the top sales price at $625,000? I want to purchase a home in a CCRC and the price is $950,000. I am assuming the appraisal will come in at this amount. This is a full equity purchase. I have the funds for the down payment, but where does the rest of the funds needed to close come from? The difference between the down payment and proceeds to fund the loan do not add up to the price...please explain. It is appreciated. Thanks.
Reply to Christine
- ARLO™
  February 7th, 2013
  
  Hi Christine,
  There is no maximum "sales price". There is only a maximum HUD Lending Limit of $625,500 which means that your benefit amount will be determined from this amount, the appraised value or the sales price, whichever is less. You can buy any value property you wish, but if the home's selling and appraised value is over $625,500 you will not receive any additional benefit on the reverse mortgage than if it was $625,500 and you will have to bring in the difference in cash to close the loan.
  For example, a borrower born on January 1, 1945, purchasing a property for $625,500 would currently receive a principal limit of $407,826.00. From that, you would subtract the HUD Mortgage Insurance Premium, the costs to obtain the loan and the recording costs (which vary around the country) and the borrower would have to bring in approximately $232,545.00 to close the loan and the reverse mortgage would cover the rest. However, if you wanted to buy a home for $950,000, you could certainly do that, but the reverse mortgage benefit would remain the same, $407,826. this means you would have to pay the difference of nearly $325,000 more in cash to close or you would need to put down approximately $557,045 to purchase that home using a reverse mortgage.
  The reason these two amounts don't add up to the $950,000 ($407,826 + 557,045) is because of the fees incurred with the loan. This example was used in a California closing where the closing costs are low. If you were to use a property in Florida or Texas where the title costs and the state costs are higher, these costs could be $5,000 to $7,000 or more higher on a property of this value. But the funds for closing come from you and the reverse mortgage loan.
  Reply to ARLO
Dennis Royer
January 21st, 2013

I want to purchase a new home ($425,000) using a reverse mortgage. I'm 63 and my wife is 45. What happens if I die and she is not 62? What would be required for her to be able to stay in the home since I would have been the only one on the "deed" because of the rules of reverse mortgage purchase. As she would be the benificary to the home at my passing.
Reply to Dennis
- ARLO™
  January 22nd, 2013
  
  The only way you could do a reverse mortgage would be if your spouse was not ever brought on title and this is something we do not recommend lightly. There can be some very high risks associated with this action as well as the fact that many lenders and secondary sources will be eliminating this option completely as of February 1, 2013.
  Because the loan becomes due and payable when the last borrower on the loan permanently leaves the home or passes, if the younger borrower who would not be on title or on the loan is not ready to move when this event occurs and you do not have other provisions in place beforehand to provide for this, it could create extreme hardships on the remaining spouse. This has led to the unplanned displacement of the previously under-aged spouse in many instances. This creates confusion, hardship and has been the start of recent lawsuits from borrowers who truly did not understand the ramifications of such action at the time they first received their reverse mortgages.
  Some provisions borrowers have informed us of that worked for them include an insurance policy that paid the mortgage off when the older borrower passed; a second property that the borrowers owned that the spouse intended to occupy after the passing of the older borrower anyway; and also the plans that the younger spouse fully intended to move to another state to be with family if and when the older spouse was no longer living anyway. Absent a clear alternative such as one of these, it would be very sad for the spouse of a reverse mortgage borrower to be uprooted from his/her home at the worst possible time if that was not in the plans simply because the loan was now being called due and payable with the passing of the borrower and the remaining borrower did not have the means to refinance the loan in his or her own name at that time. Because the reverse mortgage balance rises with no payments and the accrual of interest, it would only get harder for the previously under aged spouse to refinance the loan later in her own name.
  You are correct, she would own the home at the time being your heir, but that would not help her very much if she did not have the means to refinance the home in her own name at that time of your passing. If there was very little or no equity due to a rising balance she might be left looking for a place to live with no nest egg to rely on to help establish her in another location (not to mention another situation like we have just had where housing prices fell sharply). We do not recommend this action for borrowers unless they know the risks and know that they have made provisions such as the ones listed above to protect the under aged spouse.
  Reply to ARLO
Nancy
January 19th, 2013

What are the lifetime rights of one person passes away?
Reply to Nancy
- ARLO™
  January 29th, 2013
  
  Hi Nancy,
  I'm not 100% sure I understand your question but let me take a stab at this. If you are on a reverse mortgage jointly with another individual and one of you passes away, nothing happens to the loan, it remains intact providing at least one of the original borrowers is still living in the property as their primary residence. You can remain in the property for life without having a monthly mortgage payment as long as you abide by the terms of the reverse mortgage (i.e. pay your taxes and insurance and maintain the home, etc). I hope this answers your question but if I did not, please feel free to let me know and I'll be happy to give it another go.
  Reply to ARLO
Joe Gerstein
January 14th, 2013

I am purchasing a new house. I was going to get a conventional mortgage and deposited a lot of money with the builder several months ago to complete the home. The home appraises at $425,000. I gave him $170,000 which he still has most of it. We are living in the house until we get a mortgage. How can I meet the down payment requirements for a reverse mortgage since he has the money?
Reply to Joe
- ARLO™
  January 15th, 2013
  
  Hi Joe,
  The reverse mortgage only requires that you verify the down payment, the transfer of the money and then the source of the funds. If the contract between you and the seller calls for you to deposit $170,000 at the time the contract was signed, you would have to show that you had the funds to deposit that amount at the time you made the deposit, a copy of the cancelled check showing the transfer of the funds and a minimum of three months prior statements to show that the funds were available for three months before they were given to the builder. Depending on your age and benefits under the program, you may need to verify additional funds and they would need to go through the same sourcing routine.
  Reply to ARLO
Jeff
November 26th, 2012

Hi,
I am 71 years old, and I am deciding to buy a new home in Orange county ca. I have 300000
for down for a single family cost about 450000. Can I get 150000 dollars as reverse mortgage? how much interest and other cost. Can I pay interest amount yearly.
Reply to Jeff
- ARLO™
  December 4th, 2012
  
  Hi Jeff,
  Yes to all of the above! And you have several options you can use to do it. You could choose to use a fixed rate, but then you would have to take a full draw of the amount available to you and that would be more than $150,000. However, if you really want a fixed rate mortgage, you could use the fixed rate reverse mortgage and pay back any portion of the funds you did not want at any time without penalty. For example, I don't have your exact date of birth or know your fees so these are estimates, but at 71 years of age, you would be eligible for approximately $301,950 and after the fees, you would have somewhere in the neighborhood of $290,786 paid toward the purchase price with the reverse mortgage leaving you needing to bring in approximately $159,214 (these numbers are approximations in that I do not know if you are 71 but will be 72 within 6 months which would make your benefit amount higher or what your actual closing costs would be).
  But with the fixed rate program, if you did not want to have this high a mortgage and wanted to pay down that amount, you could do so without penalty at any time and yes, you could also pay any amount per year that you wanted to keep your balance down as well after that. You just have to remember that any repayment is credited first to HUD mortgage insurance premiums, any outstanding fees, then to interest and then to principal. The net effect is the same on the amount of interest that you pay as any repayment lowers the amount of interest you pay, but it can effect interest deduction on any repayments.
  Then you can also consider purchasing with an adjustable reverse mortgage and you can use any amount you desire. With the adjustable reverse mortgage, you can take only the amount you want ($150,000), pay the rest of the purchase price yourself and then the remaining portion of the reverse mortgage would be available to you later in a line of credit that you could access at any time. You do not HAVE to borrow the funds ever, but they would be there if you needed them and you do not pay interest on them if you do not borrow them. The line of credit grows on the unused portion so at the end of 10 years, the $138,000+/- line of credit would grow to $225,000+/- so you would have more funds available to you if needs at that time. The costs would vary with the type of loan you chose and you could even lower them significantly by using the Saver program with the line of credit and lower your costs by almost $9,000 up front on the HUD mortgage insurance premium (but you would also have a lower credit line available to you after the close of the loan than outlined above).
  So regardless of your preference, whether you want a fixed rate or an adjustable loan, there is a way to allow you to purchase with a reverse mortgage and accomplish exactly what you are trying to do. I would encourage you to contact us so that we can show you all the scenarios tailored to your parameters.
  Reply to ARLO