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Dear Igor Noble,

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HOME / Reverse Mortgage / HECM For Purchase

    HECM For Purchase – Reverse Mortgage To Buy Properties

The HECM for Purchase allows seniors to finance a portion of a new home using a reverse mortgage. It can be a valuable tool for someone who is looking to downsize or move closer to relatives, but who has limited funds to support this transition. Some of our clients who used HECM for purchase loan was a Buddhist Monk, who didn’t have income within the United States, was over 80 years old, had enough personal funds on his checking account, and bought a house on Long Island.

The HECM for Purchase has considerable potential and could thrive as a useful product for those who want to maintain liquidity and still purchase a new home. Income tax returns and credit scores are not required. Assets verification with two most recent bank statements is required. Many characteristics of the HECM for Purchase are the same as a traditional HECM, with the same loan-to-value calculations involved, but there are some unique aspects of the transaction. For example, a borrower must move into the new home within 60 days of closing, and if they own other properties, they must make the new home their primary residence.

Before Home Renovation
Initial Meeting With The Buyer

You can use a HECM for Purchase reverse mortgage loan to buy your next home if:

  • The youngest homeowner is 62 or older.
  • The purchased home will be occupied within 60 days of closing.
  • The purchased home will be the primary residence.
  • The borrower is US Citizen or a Green Card holder.
  • Only the HECM mortgage loan can be used to purchase the home.
  • The difference between the purchase price of the home and the HECM proceeds will be paid in cash from the sale of an existing home or another source of funds.

Example – Selling an existing home

  • A single man, age 72, recently had his home appraised for $200,000 and still owes $50,000; leaving him with remaining home equity of $150K.
  • He wants to purchase for $350K
  • Based upon many factors including, the age of the youngest borrower (in this case 72), current interest rates, the lesser of the home's appraised value, purchase price or FHA national lending limit, and loan fees he is eligible to borrow approximately $237,000 on the new property.
  • He decides to buy the new property using $150,000 from the sale of his existing home and $200,000 available from the total HECM loan proceeds of $237,000.
  • This leaves him with a $37,000 line of credit from the remaining HECM proceeds.
  • As with all mortgage loans borrower must continue to pay his property taxes and homeowner's insurance premiums.

Example – Paying cash

  • A single woman, age 65, rents a home but has saved $100,000 to purchase a property.
  • She wants to purchase a home for $250,000.
  • After putting her $100,000 savings toward the home purchase, she is still short the remaining $150,000.
  • She decides that a HECM for Purchase is her best option.
  • Based upon many factors including, the age of the youngest borrower (in this case 65), current interest rates, the lesser of the home’s appraised value, purchase price or FHA national lending limit, and loan fees, she is eligible to borrow approximately $160,000 on the new property.
  • She takes the full $160,000 from the HECM loan proceeds and combines it with her $100,000 savings for a total of $260,000 to cover the acquisition and the closing cost.
  • She purchases the new home and will not be required to make monthly mortgage payments.
  • As with all mortgage loans borrower must continue to pay his property taxes and homeowner’s insurance premiums.

Special restrictions
- Gift funds are not acceptable as a form of down payment. The following funding sources may not be used:

  • Sweat Equity
  • Trade Equity
  • Rent Credit
  • Cash or its equivalent, in whole or in part, from the following parties, before, during or after loan closing:

    - The seller or any other person or entity that financially benefits from the transactions, or
    - Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in the previous bullet.
  • If the homeowner is using cash, the cash must be seasoned for 60 days.
  • There must be proof that the homeowner has “eligible funds” for the closing and must provide all corresponding documents such as:

    Verification of assets
    Proof of liquidation of retirement assets
    Deed of Sale
    HUD1 Home Sale Statement

  • Seller’s concessions for the closing costs are not allowed.

The property must be a primary residence and can be

  • Existing one-to-four unit properties where construction has been completed and the property is habitable as evidenced by local jurisdiction issuance of certificate of occupancy or its equivalent.
  • Approved Condominiums.

Ineligible property types include

  • Cooperatives
  • Newly constructed principal residences where a Certificate of Occupancy or equivalent has not been issued by the appropriate local authority
  • Boarding house
  • Bed and Breakfast establishments
  • Existing manufactured homes built before June 15, 1976
  • Existing manufactured homes built after June 15, 1976 that does not conform to the manufactured home construction safety standards or lack a permanent foundation.

All major home repairs must be completed by the property seller before the loan can close:

To be eligible for federal insurance, the property must meet FHA minimum property requirements. All repairs to correct major property deficiencies that threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property must be completed by the seller prior to closing. The buyer cannot pay for any repairs before they own the home. The repairs must be included in the purchase agreement.

Major Property Deficiency Examples:
No running water
Leaking roof
No primary heating source
Inadequate electrical system (including lighting)
Inoperable doors and windows (inhibited ingress and egress)
State or local code violations

With a HECM for Purchase loan the usual costs associated with selling and buying a property apply as well as the normal reverse mortgage loan fees.

Before Residential Rehab Loans
After The Closing

To get more information about HECM for Purchase Mortgage, please complete the form below.

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