HECM for Purchase. Buying a Home with a Reverse Mortgage. Seniors are eligible to use a reverse mortgage to purchase a principal residence as part of HUD's "HECM for Purchase Program."
Eligibility. The youngest homeowner is age 62 or older and the purchased home will be primary residence, purchased home will be occupied within 60 days of closing , no mortgage loan other than the HECM can be used to buy the purchased home and the difference between the purchase price of the home and the HECM proceeds must be paid in cash or from sale of existing home.
Example A (selling an existing home)
- Mr Jones is 62 currently lives in a home he has lived in for 10 years. The home was recently appraised for $250,000 and he is pretty confident he can sell it for that much. He still owes $50,000 on his 30-year mortgage so he has $200,000 in home equity.
- Mr Jones wants to move and has found a $300,000 property that he likes.
- If Mr Jones sells his home and applies his $200,000 in home equity to buy the $300,000 property, he will be short $100,000. So he decides to use a HECM for Purchase to make up the $100,000 difference.
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A HECM for Purchase can used to upsize or downsize.
- Mr Jones knows that at age 62, he is eligible to borrow approximately $165,000 on the $300,000 property with the HECM purchase program.
- So Mr Jones buys the property using $200,000 from the sale of his home, $100,000 from the HECM for Purchase, and keeps $65,000 left over in the reverse mortgage credit line.
- Mr Jones now owns his $300,000 home and has no mortgage payments.
Example B
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Mrs Smith is 70 and is currently renting but wants to buy a new home. She has saved up $100,000 towards buying property.
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The home Mrs Smith wants to buy is going to cost $250,000 so she is short $150,000.
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Mrs Smith decides to take out a HECM for Purchase. At her age, she can borrow approximately $150,000 on a $250,000 home.
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Taking the full $150,000 from the HECM for Purchase and $100,000 from her savings, she is able to buy the home.
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Mrs Jones now owns her $250,000 home and has no mortgage payments.
Qualifications
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If the homeowner is using cash (instead of the sale of your existing home) to make up the difference, that cash must be "seasoned" for 60 days.
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Cash from a gift is not acceptable.
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To prove that the homeowner has "eligible funds" for the closing, any of the following documents can be provided:
The property must be the primary residence and may be
Ineligible property types include
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Cooperatives
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Homes without a Certificate of Occupancy or its equivalent
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Boarding houses
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Bed and breakfast establishments
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Existing manufactured homes built before June 15, 1976
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Existing manufactured homes built after June 15, 1976 that fail to conform to the manufactured home construction safety standards or lack a permanent foundation
What if the home needs repairing? Most repairs aren't critical but major ones have to be taken care of before the transaction can close
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Critical health and safety and structural integrity issues must be repaired
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Repairs must be completed prior to closing by the seller
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The buyer can not pay for any repairs before they own the home
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The repairs must be included in the purchase agreement
