Can a Reverse Mortgage Be Used to Purchase a Home?

10.27.2025 | Category: Financial Planning

Summary: If you’re a homeowner age 62 or older, or in some cases 55 or older, a reverse mortgage could provide cash to supplement your retirement income and give you greater financial flexibility. In this article, we’ll explore the requirements for using a reverse mortgage to purchase a home. We’ll also detail various reverse mortgage pros and cons and discuss who may be a good candidate for this type of loan.

If you’re a homeowner who’s 62 or older, you may have heard about reverse mortgages as a way to access the equity in your home. But did you know that a reverse mortgage can also be used to purchase a new home? Keep reading to learn how.

Understanding a reverse mortgage

Before we dive into using a reverse mortgage for a home purchase, let’s first understand what a reverse mortgage is.

The most common reverse mortgage is a Home Equity Conversion Mortgage, also called a HECM loan. It’s backed by the federal government through the Federal Housing Administration, the U.S. Department of Housing and Urban Development and the Consumer Financial Protection Bureau.

A HECM reverse mortgage is a loan only available to homeowners age 62 or older. A HECM allows them to access the equity in their homes, as long as the home is their primary residence. A reverse mortgage cannot be used on vacation homes or investment properties.

Mutual of Omaha now provides a reverse mortgage known as SecureEquity that in some cases allows homeowners as young as 55 to access their home equity without the obligation of monthly mortgage payments.

How does a reverse mortgage work?

Unlike a traditional mortgage, where the borrower makes monthly payments to the lender, with a reverse mortgage, the lender makes payments to the borrower. The amount of money the borrower receives is based on three factors: their home’s value, the age of the youngest borrower and current interest rates.

There are no reverse mortgage restrictions on how the proceeds from a reverse mortgage can be used. Often the money is used to supplement retirement income, to pay for home renovations or to start an emergency fund. Borrowers can receive the loan payments as a lump sum, a line of credit, monthly installments or a combination of these methods.

The loan is repaid when the last borrower moves out, sells the property, passes away or no longer uses the home as their primary residence.

One common myth about reverse mortgages is that the bank is buying the home from the homeowners. That’s not true. The homeowners retain ownership of the house. For this reason, homeowners must still pay property taxes, homeowners insurance and home maintenance.

Reverse mortgage requirements

Homeowners must be age 62, or in some cases 55 or older, to qualify for a reverse mortgage. And the home being used for the loan must be your primary residence. Vacation homes or investment properties don’t qualify. It’s possible, however, to use reverse mortgage funds from the principal residence to finance vacation homes or even investment properties.

Another way to use a reverse mortgage is to actually purchase a new home. This is known as the reverse for purchase option. Whether a reverse mortgage for purchase is right for you depends on your individual financial situation and goals. Here are some factors to consider:

Your age

As noted earlier, you must be at least 62 years of age, or 55 in some cases, to apply for a reverse mortgage for purchase. If you’re younger, a traditional mortgage may be a better option.

Your current home equity

The amount of equity you have in your current home will determine how much you can access with a reverse mortgage. In a reverse for purchase option, the amount of the home’s purchase you can finance is based on the new home, not the home you’re departing.

With a reverse for purchase transaction, a one-time down payment is required, but the rest of the purchase price is financed in the form of a reverse mortgage. This means you won’t be obligated for monthly payments for as long as you reside in the home and maintain tax and insurance assessments.

Your long-term plans

Do you want to stay in your current home or move? If you’re looking to downsize or move to a new location, a reverse mortgage for purchase may be a good fit.

Your income

If you want to relocate but live on a fixed income, a Home Equity Conversion Mortgage for Purchase may allow you to move without taking on monthly mortgage payments.

It’s essential to carefully consider all options and consult with a financial advisor before making any decisions about a reverse mortgage.

Using a reverse mortgage to purchase a home

The federally insured HECM for Purchase program was established by HUD in 2009 to streamline the home buying and reverse mortgage process. Before its inception, buyers typically underwent the cumbersome and costly process of obtaining a traditional mortgage to purchase a home, followed by acquiring a reverse mortgage shortly after, incurring double the closing costs and additional complexities.

While a reverse mortgage loan is a good option for those who want to retire in place, it’s not uncommon for homeowners to relocate in retirement, whether they want to upsize, downsize or seek a warmer climate. Many also move to be closer to their children and grandchildren.

For those who want to purchase a new home but also want the benefits of a reverse mortgage, the HECM for Purchase may be the solution they’re looking for.

A HECM for Purchase and a SecureEquity for Purchase are financial tools that enable homebuyers to finance approximately half of the purchase price of a new home through a reverse mortgage combined with a large down payment, usually from the sale of their previous home.

This innovative approach consolidates the processes of buying a new home and securing a reverse mortgage into a single transaction, thereby reducing the burden of multiple closings and associated costs.

Similar to traditional reverse mortgages, this arrangement doesn’t require borrowers to make monthly mortgage payments on the portion covered by the reverse mortgage, provided the home remains their primary residence.

Borrowers must also uphold their loan responsibilities, including paying property taxes, homeowners insurance, maintenance expenses and applicable homeowners association (HOA) fees.

Benefits of using a reverse mortgage for a home purchase

This financial tool offers several advantages that can significantly benefit retirees looking to transition into a new home, including:

Reduced monthly expenditures

One of the most immediate benefits of a reverse for purchase loan is the elimination of monthly mortgage payments, which significantly lowers monthly living costs. This feature can free up income for other expenses or leisure activities, enhancing the quality of life in retirement.

Preservation of savings

Opting for a HECM for Purchase allows retirees to conserve a larger portion of their retirement savings. In a phase of life where income might be fixed, maintaining a substantial nest egg is crucial for covering unexpected expenses and ensuring financial security. And since a reverse mortgage doesn’t require monthly mortgage payments, homeowners may have additional funds to cover expenses without tapping their retirement savings.

Access to better housing

A HECM for Purchase or a SecureEquity for purchase can help buyers qualify for higher-value homes than might be possible if using a traditional forward mortgage. This advantage enables retirees to live in a home that meets all their desires and needs without overextending their financial resources.

Drawbacks of using a reverse mortgage for a home purchase

While there are many benefits to using a reverse mortgage to purchase a home, there are drawbacks you need to consider as well.

Reverse mortgages usually have higher interest rates than regular mortgages. However, when comparing the two options, many people find the benefit of no monthly mortgage payments greater than the difference in interest rates.

In addition, there are property types that don’t qualify for a HECM for Purchase. For example, a co-op unit and certain manufactured homes may not qualify for this program. However, a SecureEquity reverse mortgage may be used for a condominium purchase that’s not possible with a HECM.

The bottom line on using a reverse mortgage for purchase

A reverse mortgage for purchase presents a viable option for those 62, and sometimes age 55, who seek to buy a new home while enjoying the financial flexibility that comes with reverse mortgages.

By eliminating monthly mortgage payments, preserving retirement savings and providing access to better housing, this innovative tool can significantly enhance retirees’ quality of life. However, potential buyers must weigh the higher interest rates and specific property type restrictions against these benefits.

To learn more about using a reverse mortgage to purchase a home, schedule time to consult with a financial advisor about your retirement goals and financial situation.
Watch this short video on how to find a financial advisor that’s right for you.

Frequently asked questions (FAQs)

Who owns a house in a reverse mortgage?

Taking out a reverse mortgage loan doesn’t mean the owner is selling their home or transferring ownership. The title of the property remains with the homeowner. The lender doesn’t own the home.

What happens if you inherit a house with a reverse mortgage?¹

If you inherit a reverse mortgage property and you’re not a surviving spouse or co-borrower, you’ll be responsible for paying off the loan. But you do have options:

Sell the property and use the proceeds to pay off the mortgage.
Keep the property and take out a forward mortgage to pay off the reverse mortgage balance.
Use personal funds to pay off the mortgage and keep the property.

Is the borrower required to repay a reverse mortgage loan?²

A reverse mortgage allows the borrower to convert a portion of their home’s equity into cash. The loan does not need to be repaid as long as the borrower fulfills the terms of the loan, which will typically require:

Paying property taxes
Keeping up repairs and maintenance
Paying homeowners insurance
Paying HOA dues
Living in the home as a primary residence

Disclosures:

Mutual of Omaha Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N Suite 1100, San Diego, CA 92108.

Charges such as an origination fee, mortgage insurance premiums, closing costs and/or servicing fees may be assessed and will be added to the loan balance. As long as you comply with the terms of the loan, you retain title until you sell or transfer the property, and, therefore, you are responsible for paying property taxes, insurance and maintenance. Failing to pay these amounts may cause the loan to become immediately due and/or subject the property to a tax lien, other encumbrance or foreclosure. The loan balance grows over time, and interest is added to that balance. Interest on a reverse mortgage is not deductible from your income tax until you repay all or part of the interest on the loan. Although the loan is non-recourse, at the maturity of the loan, the lender will have a claim against your property and you or your heirs may need to sell the property in order to repay the loan, or use other assets to repay the loan in order to retain the property.

These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency.

Subject to Credit Approval. www.nmlsconsumeraccess.org

Consult your Tax Advisor. A Reverse Mortgage is a debt. Borrower must occupy home as primary residence.

Footnotes:

¹Trust and Will, I Inherited a House With a Reverse Mortgage — Now What?, accessed August 2025, trustandwill.com/learn/inherited-a-house-with-a-reverse-mortgage/.

²Finance of America, Who Owns Your Home With a Reverse Mortgage Loan?, March 10, 2025, accessed August 2025, financeofamerica.com/education/who-owns-your-home-with-a-reverse-mortgage/.

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