HECM for Purchase

A HECM for Purchase allows an eligible homeowner age 62 or older to purchase a new principal residence using a combination of their own funds and proceeds from an FHA-insured Home Equity Conversion Mortgage.

The borrower retains ownership of the home and is not required to make monthly principal-and-interest mortgage payments.

Generally, the youngest borrower must be at least age 62. The home must become the borrower’s principal residence.

Borrowers must also complete HUD-approved HECM counseling and meet FHA financial-assessment requirements.

A HECM for Purchase allows an eligible buyer age 62 or older to purchase a new principal residence without using all of the equity from the sale of their current home—and without taking on a required monthly principal and interest mortgage payment.

For example, assume the borrower sells their current home and has $500,000 in available equity. Instead of using the entire $500,000 toward the purchase of the next home, a HECM for Purchase may provide a portion of the funds needed to complete the purchase.

For illustration purposes only:

• Available equity from sale of current home: $500,000
• HECM loan proceeds available toward purchase: $200,000
• Borrower contributes toward purchase: $300,000, plus applicable closing costs
• Equity retained by the borrower: $200,000
• Required monthly principal and interest payment: $0

The amount available through the HECM is based primarily on the age of the youngest borrower, the purchase price or appraised value of the new home, prevailing interest rates, and FHA program limits.

The result is that the borrower may be able to purchase the new home while preserving a substantial portion of the equity from the sale of their previous home for retirement, investments, healthcare, emergencies, or other financial needs.

The borrower must continue to meet the loan requirements, including paying property taxes and homeowners’ insurance, maintaining the property, and occupying the home as their principal residence.

The buyer’s required cash investment is generally the purchase price, plus applicable closing costs, minus the amount provided by the HECM loan and any allowable seller or interested-party contributions.

In simple terms:

Purchase Price + Closing Costs
− HECM Loan Proceeds
− Allowable Contributions (Seller – 6%)
= Buyer’s Required Cash Investment

The amount available from the HECM depends on several factors, including the age of the youngest borrower, the purchase price or appraised value, prevailing interest rates, and FHA program limits.

Generally, the older the borrower, the larger the percentage of the purchase price that may be provided by the HECM—meaning less cash the buyer may need to bring to closing.

There is no required monthly principal-and-interest mortgage payment.

However, the homeowner must continue to pay property taxes, homeowners insurance, applicable HOA charges, and maintain the property as required. The home must remain the borrower’s principal residence.

A HECM for Purchase can allow a buyer to preserve a substantial portion of cash, investments, or retirement assets rather than committing all available liquidity to the purchase of a home.

The retained assets can remain available for retirement income, healthcare expenses, emergencies, investments, or other needs.

Yes. A buyer can combine their available cash or home-sale proceeds with HECM loan proceeds to purchase a higher-priced home—without a required monthly principal and interest payment.

For illustration purposes only:

• Purchase price: $700,000
• Equity available from sale of current home: $500,000
• Buyer contributes: $500,000, plus applicable closing costs
• HECM provides: $200,000
• Required monthly principal and interest payment: $0

This can allow a senior buyer to purchase a home they may not have been able to buy with cash alone. Seller contribution can be up to 6%.

Yes. It can be particularly useful for homeowners selling an existing residence and moving to a smaller home, relocating closer to family, moving to a retirement community, or purchasing a home that better meets their future needs.

Rather than investing all of the sale proceeds in the replacement home, the buyer may be able to preserve a portion as liquidity.

Yes. A HECM may be used to purchase a new or under-construction home, provided the property satisfies FHA property-completion, occupancy, appraisal, and eligibility requirements applicable to the transaction.

Yes. Under FHA HECM for Purchase guidelines, the seller, builder, developer, real estate agent, or other permitted interested party may contribute up to 6% of the sales price toward allowable borrower costs.

These contributions may help pay origination fees, allowable closing costs, prepaid items, and the Initial Mortgage Insurance Premium (IMIP), subject to FHA requirements.

For Realtors and builders, this can be an important negotiating tool because a seller contribution of up to 6% may significantly reduce the senior buyer’s cash needed for closing.

The buyer owns the home and holds title just as with a traditional mortgage. The HECM is simply a mortgage lien against the property.

The loan generally becomes due and payable when the last borrower permanently leaves the home, sells it, or dies, subject to applicable HUD provisions.

The loan is normally repaid from the sale or other available funds. Any remaining equity belongs to the homeowner or the homeowner’s estate.