Can retirees use a reverse mortgage to buy a home?

A little-known reverse mortgage program could help retirees buy a new home without monthly mortgage payments. Pla2na/Getty Images

For many older Americans, retirement isn't about staying put in their homes. It's a time for making a meaningful change instead. Some retirees want to downsize their home into a more manageable space, for example, while others dream of relocating closer to family or settling into a sunny retirement community. But with mortgage rates still hovering above 6% despite recent rate drops, and retirement income typically fixed, buying a new home later in life can feel like an uphill climb.

The challenge of qualifying for a new loan in your 60s or 70s can make buying a home in retirement feel complicated, or even out of reach. So, while the desire to move during retirement may be clear for some retirees, the logistics often aren't. Today's homeowners hold record levels of home equity, though, with the average homeowner holding over $300,000 in home equity currently — and some senior homeowners, especially those who've been in their homes for decades, may have access to a lot more. 

And, seniors have one unique home equity option available to them: a reverse mortgage, which allows retirees to borrow against their home equity without the burden of monthly payments. A reverse mortgage typically requires you to stay in your home over the long term, though, so can retirees use this borrowing option to buy a new property? Below, we'll detail what to know.

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Can retirees use a reverse mortgage to buy a home?

In general, yes, retirees can use a reverse mortgage to buy a home, but they can't use just any reverse mortgage to do so. There's a specific type of reverse mortgage, called a HECM for Purchase loan, that can be used to buy a primary residence. Instead of taking out a traditional mortgage and making monthly payments, borrowers simply use the proceeds from a reverse mortgage (combined with a sizable down payment) to purchase the home.

This option can be particularly appealing in today's rate environment, where conventional mortgage payments can stretch retirement budgets. But while a HECM for Purchase loan can offer the financial flexibility that senior homebuyers are looking for, it also comes with its own eligibility rules, upfront costs and ongoing responsibilities — meaning it's not for everyone. Here's how it works:

• You contribute a down payment, typically between 45% and 62% of the home's purchase price, depending on your age and current interest rates.
• The reverse mortgage covers the rest of the cost.
• You don't make monthly mortgage payments on the HECM for Purchase loan. The loan balance grows over time instead and is repaid when you sell the home, move out permanently or die.

For example, say you're 72 and want to buy a $400,000 home. You might need to put down about $180,000 to $248,000. The reverse mortgage would finance the remainder, and you wouldn't owe monthly payments, freeing up retirement income for other expenses.

This approach can be particularly useful for retirees who are "house rich but cash limited." By selling their current home, they can use some of the sale proceeds as the down payment on a new property, while preserving more liquid assets for living expenses.

Compare your reverse mortgage loan options and find the right fit today.

Who qualifies for a HECM for purchase loan?

Not every retiree will qualify for this type of loan. The Federal Housing Administration (FHA) sets strict rules to protect both borrowers and lenders. To be eligible, you generally must:

• Be at least 62 years old. Reverse mortgages are designed for older homeowners.
• Use the home as your primary residence. Vacation homes and investment properties don't qualify.
• Make the required down payment. This amount depends on your age and the expected interest rate. Older borrowers typically need to put down less.
• Complete HUD-approved counseling. Before closing, you'll need to meet with a housing counselor to ensure you understand how the loan works.
• Be able to maintain the property and pay ongoing costs. While you won't have monthly mortgage payments, you must stay current on property taxes, homeowners insurance, HOA dues (if applicable) and keep the home in good repair.

The bottom line

Retirees can use a reverse mortgage to buy a home, but they typically have to use a specific type of reverse mortgage to do so. For some, a HECM for Purchase loan can be a powerful financial tool. It's not a one-size-fits-all solution, though. The required down payment, upfront mortgage insurance premiums and long-term responsibilities mean it's generally best suited for retirees who plan to stay in the home for the long haul and can keep up with property costs. 

So, before moving forward, it's important to consult with a HUD-approved housing counselor to make sure this strategy aligns with your retirement goals. With careful planning, though, a reverse mortgage for purchase can offer both housing stability and financial flexibility in your later years.