Most people have heard of reverse mortgages for homeowners who already own their home. Fewer people know that you can also use a reverse mortgage to buy a new home, with no monthly mortgage payment. It's one of the most underused retirement planning tools available. (There's no required monthly mortgage payment, but you still pay property taxes, homeowner's insurance, and upkeep, and must live in the home as your primary residence.)
What Is a HECM for Purchase?
A HECM for Purchase (H4P) is a government-insured reverse mortgage specifically designed to help homeowners 62 and older buy a new primary residence. Instead of obtaining a traditional mortgage and making monthly payments, you make a one-time down payment from your own funds, and the reverse mortgage covers the rest. The result: you own a new home with no monthly mortgage payment required.
Why Would Someone Do This?
The most common scenarios:
- Downsizing with cash preservation. You sell a larger home and want to buy a smaller one, but you'd rather keep your cash working in retirement than tie it all up in a new property.
- Moving closer to family. You're relocating to be near children or grandchildren and want to purchase in the new area without a monthly payment obligation.
- Right-sizing for retirement. You want a home that's better suited for aging in place, single-story, lower maintenance, without depleting retirement savings.
- Moving to a higher-value market. You're selling in one area and buying in Arizona's Phoenix metro, where the home you want costs more than your sale proceeds.
How the Numbers Work
The key difference from a traditional purchase is the down payment structure. With a HECM for Purchase, your down payment typically ranges from 45% to 60% of the purchase price, depending on your age and current interest rates. The reverse mortgage covers the remainder.
Example: Arizona Couple, Both Age 72
For illustration only. Actual down payment and figures depend on age, current interest rates, and appraised value.
Home they want to buy: $600,000 (Mesa, AZ)
Required down payment: ~$276,000 (approximately 46% at age 72)
HECM covers: ~$324,000
Monthly mortgage payment: $0
Compared to a traditional 30-year mortgage at current rates, the monthly payment on the $324,000 balance would be approximately $2,200/month. With the HECM for Purchase, that cash stays in their pocket.
Where Does the Down Payment Come From?
HUD has specific requirements about the source of HECM for Purchase down payment funds. Acceptable sources include:
- Proceeds from the sale of your current home
- Personal savings and investments
- Gift funds from family members (must be documented)
- Proceeds from the sale of other assets
Important: The down payment cannot come from seller concessions, builder incentives, or other financing. HUD requires that the funds come from the borrower's own resources or eligible gifts.
Who Qualifies?
- You (and any co-borrower) must be at least 62 years old
- The home being purchased must become your primary residence within 60 days of closing
- The property must meet FHA appraisal standards
- You must complete HUD-approved HECM counseling
- You must demonstrate the ability to pay property taxes, insurance, and maintenance (financial assessment)
What types of homes qualify?
- Single-family homes
- FHA-approved condominiums
- Manufactured homes (must meet FHA requirements)
- Multi-unit properties (2–4 units, borrower must occupy one unit)
What About New Construction?
HECM for Purchase can be used to buy newly constructed homes, but there's an important timing requirement. The Certificate of Occupancy must be issued before you can close on a HECM for Purchase loan. Pre-construction contracts can be tricky. If you're buying new construction, this timing factor needs to be planned for carefully.
The Tax and Estate Considerations
Like all reverse mortgages, the loan balance on a HECM for Purchase grows over time as interest accrues. When you eventually sell or pass away, the loan is repaid from the sale proceeds, and any remaining equity goes to you or your heirs. If home values increase, your heirs may inherit substantial equity even after the loan is repaid.
The funds you receive from your previous home sale, the portion that went to the down payment, have already been used. Your heirs inherit the new home's equity position, not the original sale proceeds. This is worth discussing with your estate attorney or financial advisor.
Is HECM for Purchase Available in Arizona?
Yes. HECM for Purchase loans are available in all 50 states, including throughout the Phoenix metro area, Mesa, Scottsdale, Gilbert, Chandler, Tempe, Peoria, and Surprise. Arizona's active adult communities (Sun City, Sun City West, Sun City Grand, Trilogy, etc.) frequently attract buyers who are ideal candidates for this program.
Where to learn more (independent sources): CFPB, What is a reverse mortgage? · HUD, HECM program · NRMLA consumer site
