How to Use a Reverse Mortgage to Buy a New Home
- Fabi Lacayo
- Mar 31
- 3 min read
Buying a new home in retirement might seem challenging, especially if you want to avoid monthly mortgage payments. That’s where a Reverse Mortgage for Purchase (HECM for Purchase) comes in. It allows homeowners aged 62 and older to buy a home using a reverse mortgage, eliminating the need for monthly payments while staying in the new home as long as they want. Here’s how it works and what to consider before making a decision.
Reverse Mortgage Meaning and How It Works
A reverse mortgage is a loan that allows homeowners to access part of their home’s equity without selling the property. Unlike a traditional mortgage, there are no required monthly payments. Instead, the loan balance grows over time and is repaid when the homeowner moves out or passes away.
With an HECM for Purchase loan, you use the reverse mortgage to buy a home. Instead of borrowing against a house you already own, you bring a down payment (typically 45-65% of the home’s price, depending on age and reverse mortgage rates), and the reverse mortgage covers the rest. Since it’s federally insured, there are reverse mortgage requirements, such as living in the home as a primary residence and maintaining the property.
Reverse Mortgage Pros and Cons
Pros:
No Monthly Mortgage Payments – Free up cash flow while still owning your home.
Downsize or Relocate – Move to a more manageable home or a location that suits your lifestyle, like Tucson, Arizona or Tacoma, Washington.
Keep Savings Intact – Avoid depleting retirement savings to buy a new home outright.
Flexible Payment Options – Choose to pay down the loan balance or not, depending on financial preferences.
Cons:
Upfront Costs – There are closing costs and mortgage insurance fees.
Home Equity Reduction – Since the loan balance increases over time, there may be less equity left for heirs.
Property Requirements – The home must meet FHA guidelines to qualify.
Reverse Mortgage Pricing and Requirements
Pricing depends on several factors, including interest rates, loan amount, and upfront fees. Generally, the older you are, the more equity you can access. Key reverse mortgage requirements include:
The borrower must be 62 or older.
The home must be a primary residence.
The borrower must pay property taxes, insurance, and maintenance.
The property must meet FHA standards.
Is This Right for You?
While a Reverse Mortgage for Purchase might seem like a simple way to buy a home without monthly payments, it’s important to consider whether it aligns with your overall financial situation. For some, the idea of using home equity to purchase a new property works perfectly, especially in areas like Tucson and Washington, where housing costs may vary. However, it’s a good idea to speak with a reverse mortgage expert to fully understand the potential impacts on your financial future, including how it might affect your estate planning or long-term goals.
Who Offers This Service in Tucson and Washington?
If you're in Tucson or Washington, exploring a reverse mortgage for purchase can open up new housing possibilities without adding financial strain. Local reverse mortgage companies offer guidance on the process, helping homeowners find the right fit based on their needs.
For more reverse mortgage information, including eligibility and pricing, resources are available to help determine if this option aligns with your goals.
If you're interested in learning more about the pros and cons of reverse mortgages and whether it fits into your retirement plan, check out this insightful post: Reverse Mortgage Pros and Cons: Is It the Right Fit for Your Retirement Plan?.
Comments