Purchase 2-4 Units with a Reverse Mortgage for Lifetime Cashflow

July 12, 2024

Michael G. Branson Edited by

Cliff Auerswald 14 comments

Table of Contents

• Exploring Reverse Mortgages for Purchasing Multifamily Units

• Reverse Mortgage Basics

• The HECM for Purchase

• Purchasing a 2-4 Unit Home with a HECM

• Additional Considerations

Exploring Reverse Mortgages for Purchasing Multifamily Units

For retirees looking to downsize, move closer to loved ones, or find a more suitable living arrangement, a government-insured loan called the HECM for Purchase can be an excellent option. This type of reverse mortgage allows individuals aged 62 or older to use the equity in their current homes to buy a new home, which can include up to four units in a single transaction.

Unlike traditional mortgages, where the loan balance decreases over time, a reverse mortgage works differently. With a reverse mortgage, the loan balance grows over time and is only due when the homeowner either passes away or moves out of the home. This feature provides financial flexibility without the burden of monthly mortgage payments.

One important requirement for all reverse mortgages, including the HECM for Purchase, is that the home must be the borrower’s primary residence, meaning they must live there for at least six months out of the year. The Department of Housing and Urban Development (HUD) oversees the HECM program and allows these loans on properties ranging from single-family homes to four-unit residences. This flexibility is particularly beneficial for those who own multifamily properties with family members or tenants living in the additional units.

By understanding the benefits and requirements of the HECM for Purchase, seniors can make informed decisions about their housing options and enjoy a more secure and comfortable retirement.

Reverse Mortgage Basics

A Home Equity Conversion Mortgage (HECM) reverse mortgage is a federally insured loan designed to help seniors age in place. This loan allows senior homeowners to convert part of the equity in their homes into cash, which can significantly improve their monthly cash flow by eliminating the need for regular mortgage payments.

Some seniors choose to access their home equity later in life, using a reverse mortgage to supplement their retirement income. Others opt to use a reverse mortgage earlier in their retirement planning to enhance their financial stability.

The HECM for Purchase is a particularly valuable option for those planning to retire over the long term. It allows seniors to buy a new home that better suits their needs while also benefiting from the advantages of a reverse mortgage.

By understanding how reverse mortgages work, seniors can make informed decisions that support their financial goals and help them enjoy a more comfortable and secure retirement.

The HECM for Purchase

The HECM for Purchase loan is an attractive option for seniors looking to move to a warmer or more temperate climate or to a home better suited for aging in place. Whether you are considering a single-story home or a residence with features designed for easier living as you age, this type of reverse mortgage can help make that transition smoother.

To qualify for the HECM for Purchase, borrowers must be 62 years or older and have enough funds to cover the down payment on the new home. These funds can come from the sale of a previous home or other financial resources. The down payment requirement ensures that the borrower has sufficient equity in the new property from the outset.

If you are curious about how much you might be eligible to borrow, use our reverse mortgage for purchase calculator to get an estimate based on your specific situation.

By understanding the qualifications and benefits of the HECM for Purchase, seniors can make more informed decisions about their housing needs and financial well-being in retirement.

Purchasing a 2-4 Unit Home with a HECM

The HECM for Purchase allows borrowers to buy homes with up to four units, provided the borrower occupies one of the units. This setup offers the potential to rent out the remaining units and generate rental income.

If you’re considering purchasing a multi-unit home using a reverse mortgage, it’s important to consult with a tax professional to understand the tax implications of this arrangement.

For example, imagine purchasing a four-unit property in Oceanside, CA, for $600,000. If you are 65 years old, you could use a HECM for Purchase with a down payment of $232,628. Although this might seem like a significant down payment, you could collect rental income from the other three units, potentially bringing in $4,070 per month. This rental income could significantly boost your monthly cash flow.

Alternatively, you might consider purchasing a two-unit building in Long Beach, CA, for $395,850. As a 65-year-old borrower, you could buy the property with a down payment of $155,236 using a HECM for Purchase. After closing, you could rent out the additional unit and expect to receive between $1,250 and $1,500 per month in rental income.

By understanding the benefits and requirements of purchasing a multi-unit home with a HECM, seniors can explore additional ways to enhance their financial stability and enjoy a more comfortable retirement.

Additional Considerations

When considering a HECM for Purchase, it’s important to be aware of the property’s eligibility requirements. According to HUD’s guidelines, the home must be inhabitable, as verified by a certificate of occupancy or its equivalent.

Newly constructed homes are eligible for this type of loan, provided they have received the necessary certificate of occupancy. Additionally, the borrower must occupy the home within 60 days of the loan closing to meet the residency requirements.

Understanding these additional considerations ensures that you can navigate the HECM for Purchase process smoothly and avoid any potential issues with property eligibility.

ARLO recommends these helpful resources:

- Download 12 Tips Before Purchasing with a Reverse Mortgage
- Reverse Mortgage Purchase FAQ’s

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14 Comments on this Article

Roberta R.
October 30th, 2022

I own a 4-unit house and live in one of the units. The house was estimated at $164,000 about 15 years ago. What would my payment be?
Reply to Roberta
- Michael Branson
  November 4th, 2022
  
  Hello Roberta,
  
  There are no payments with reverse mortgages. Your estimate from 15 years ago is probably substantially below what the home is worth now and depending on where you live, the value may surprise you.
  The whole idea behind the reverse mortgage is that there are no payments for as long as you live in the home as your primary residence. I suggest that you go onto our calculator and with a little information, we can tell you what you might expect to receive on a reverse mortgage on your home.
  It doesn't cost anything to look, there is never any pressure, there will be a home estimate based on current sales and the actual costs for loans in your area will be listed. It's worth a few minutes and if you like what you see you can continue but if not, there is no obligation.
  Reply to Michael
Edward
July 19th, 2021

I own income duplex; can we obtain a loan with plenty of equity in the property?
Reply to Edward
- Michael Branson
  July 19th, 2021
  
  Hello Edward,
  
  The HUD Home Equity Conversion Mortgage reverse mortgage program does allow 1-4 family properties if the owner lives in the home as their primary residence. You would then be able to rent out the remaining unit(s).
  The very nature of the reverse mortgage program does require a strong equity position in the property for all borrowers since you are not required to make any repayments on the loan for as long as you live in the home. If this is not your primary residence though, the program is not available for non-owner-occupied properties regardless of the equity position.
  Reply to Michael
Sam
January 13th, 2021

The property is in California, is the following true? Homes with up to four living units, or multi-tenant buildings, may be eligible for an FHA reverse mortgage if the owner lives in one of the units. I do not live at the property now, but if I start to live in the property today, do I need to wait 2 years to apply for the reverse mortgage. Or, I can start to apply as soon as I have moved in. Thanks, -sam
Reply to Sam
- Michael Branson
  January 13th, 2021
  
  Hello Sam,
  
  If the borrower does occupy one of the units and the property and the borrower meet all of HUD's requirements, the HUD (FHA) HECM program for reverse mortgages will accept 1-4 family residential units.
  There is no minimum time which you must occupy the residence to apply for a reverse mortgage.
  However, please keep in mind that the underwriter will look at the total circumstances and if you have not been living in the home and you have other properties and are only now moving out of a single-family residence to get a reverse mortgage on multiple units that have always been rentals, they would probably not accept the property as owner-occupied, especially if you still keep the single-family residence and have not sold it.
  In that case, your occupancy of a property that had been a rental prior to that time and the fact that you had not established an occupancy history in units prior to that time while owning both property types might cause the underwriter to require you to establish a history of occupancy prior to approving the loan.
  They would look at the entire situation and decide based on all the facts of the loan though. Other factors such as location, proximity to work (if you are still working), and other factors may also come into consideration.
  Reply to Michael
Tony L.
December 3rd, 2020

My wife and I own a 3-unit home. If we get a reverse mortgage do we continue to receive the income from the other 2 units or does it go to the reverse mortgage company?
Reply to Tony
- Michael Branson
  December 3rd, 2020
  
  Hello Tony,
  
  The house is yours; it does not belong to the lender. Any income you receive belongs to you.
  Reply to Michael
Steve
November 4th, 2019

What if I own a triplex? Can I still do a reverse mortgage and rent out the other 2 units if I live in one?
Reply to Steve
- Michael Branson
  November 4th, 2019
  
  Hello Steve,
  
  HUD eligible properties are 1-4 family units which the owner occupies one of the units and yes, you can rent out the remaining units if they are not rented for transient use (hotel/air bnb, etc).
  The property must meet all the HUD requirements and there must be other multiple unit properties available for the appraiser to use as comparable sales but otherwise, there are no specific issues or worries borrowers must be concerned with.
  Reply to Michael
Steve
October 23rd, 2019

What happens to a tenant of duplex who has a multi-year, written lease if the owner dies and the property is subject to a reverse mortgage?
Reply to Steve
- Michael Branson
  October 23rd, 2019
  
  Hello Steve,
  
  I am sorry, but this is a question for a real estate attorney practicing in the area where the property is located. This question might be the same if the owner passed and the loan was a forward loan and the heirs needed to sell the property.
  I cannot tell you the enforceability or the bonding effect of a written lease on future owners of a property when the owner who signed the lease dies. The laws in your state may give some sort of special consideration for this event, or the contract may become null and no longer valid.
  I am afraid I do not know that answer nor am I licensed to give legal advice. It is difficult to think that the lease could be enforced on any future owners of the property just as if you had passed before the term of the lease had expired, the owner of the property could probably not seek payment from your heirs for the remaining payments you would not be making but that is purely supposition on my part.
  You absolutely need to speak to an attorney to determine what legal rights and obligations you have in this instance.
  Reply to Michael
Arthur
February 5th, 2018

What information can u send me regarding this purchase of 2-4 unit property. I think this would be perfect for my parents.
Reply to Arthur
- Michael Branson
  February 5th, 2018
  
  Hello Arthur,
  We offer a free quote on the reverse mortgage for home purchase using this calculator. Please put your info through and we will send back a free analysis including the down payment requirement.
  Reply to Michael

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