Key Requirements

Here’s a quick look at the basics for a Reverse Mortgage for Purchase:

• You can buy an existing 1 to 4-unit property.

• The property must be your primary residence.

• Once the purchase is complete, no other liens are allowed on the property.

• You must provide a monetary investment at closing from an approved source (more details below).

• You need to occupy the property within 60 days of closing.

• For newly constructed homes, a certificate of occupancy must be issued by the time the loan is insured by FHA.

There are some differences between a HECM for Purchase and a traditional HECM, particularly regarding eligible property types, the cash required at closing, the role of a real estate agent, the recommendation for a home inspection, and certain closing costs.

Property Eligibility Guidelines

Eligible properties are generally the same as those for federally-insured reverse mortgages.

Ineligible properties typically include:

• Cooperative units

• Most manufactured homes (though some exceptions apply)

• Bed and breakfast properties or boarding houses

Selecting a Home and Getting an Inspection

While not mandatory, HUD strongly recommends that all seniors get a home inspection from a licensed professional. This inspection:

• Evaluates the physical condition of the property (structure, construction, mechanical systems).

• Identifies items that need repair or replacement before closing.

• Estimates the useful life of major systems and components.

• It’s a good idea for buyers to be present at the inspection to ask questions.

Required repairs for health, safety, or structural issues must be completed by the seller before closing and included in the purchase agreement. As a buyer, you cannot put money into repairs before you own the home.

Making an Offer and Closing Costs

When writing an offer, it’s crucial to state that the offer is contingent on a satisfactory inspection. You might consider having an attorney review the offer, which could increase costs but offer valuable protection. You can cancel the transaction before closing, but be aware this might affect your earnest money deposit.

Closing costs for a HECM for Purchase are similar to standard HECM costs, plus recordation fees and transfer taxes, which vary by state.

Monetary Investment and Funding Sources

What is the monetary investment requirement? At closing, you’ll need to provide funds to cover the difference between the HECM loan amount (principal limit) and the property’s sales price, plus any HECM loan fees not financed or covered by other FHA-allowable sources. Essentially, the reverse mortgage proceeds and your own funds (from savings or selling your old home) must be enough to buy the new property outright. You can also choose to invest more to keep a portion of HECM proceeds available for future draws.

Allowable funding sources include:

• Your own money or money from selling assets.

• Withdrawals from your savings or retirement accounts.

• Credits (contributions) up to 6% of the sales price from an interested party (like the seller, builder, or real estate agent).

Lenders must verify the source of all funds before closing, often requiring bank statements and explanations for any recent large deposits.