How to Downsize (Without a Mortgage Payment) Using a HECM

What’s a Reverse Mortgage for Purchase?

A reverse mortgage for purchase is a unique transaction that allows you to partially finance a home purchase with a reverse mortgage. It’s also known as a home equity conversion mortgage (HECM) for purchase.

A reverse mortgage for purchase is only possible if you can make a substantial down payment, usually around 50%. In the same transaction, you take out a reverse mortgage to finance the remaining balance.

Just as with any other reverse mortgage, you won’t owe monthly mortgage payments. The balance on the reverse mortgage is due when you die, sell the house, or move.

Likewise, if you’re considering this option, you must meet all of the eligibility requirements for reverse mortgages in general. These include being at least 62, maintaining the home as your primary residence, and continuing to pay homeowners’ insurance premiums and property taxes.

Downsizing With a Reverse Mortgage for Purchase

If you’re not already familiar with the concept, the idea of a reverse mortgage for purchase can be difficult to wrap your head around. Here’s a step-by-step look at how to downsize with a HECM for purchase:

Step 1: Sell Your Existing Home

You’ll need to use the proceeds from the sale of your current home to put a down payment on a newer, smaller home.

Step 2: Choose Your New Home and Get Approved

You will need to get approved for a reverse mortgage for purchase. It’s important to work with a lender who is familiar with the process. Your loan officer will be able to help you understand what kind of home you can reasonably afford.

Step 3: Use the Sale Proceeds for a Down Payment

Once you’ve found a smaller home you like, you can make your down payment. Most standard reverse mortgages require you to have at least 50% equity in your home, so most reverse mortgages for purchase require a 50% down payment.

Step 4: Finance the Rest With a Reverse Mortgage

Technically, this step is part of the same transaction. You take out a reverse mortgage against your equity in the home (your down payment) and use it to pay for the rest of the home. If you have remaining sale proceeds from your previous home, you can put them toward your retirement income.

What Are Some of the Benefits of Downsizing with a Reverse Mortgage for Purchase?

A reverse mortgage for purchase simplifies the downsizing process, but there’s still a fair bit of effort involved. However, many seniors determine that it’s well worth it. These are some key benefits:

No Mortgage Payments

This is one of the most important advantages of this strategy. When you don’t have to pay a mortgage each month, you can enjoy greater stability.

More Cash for Retirement

Because you’re selling a larger home to buy a smaller one, you’ll almost certainly have funds remaining after your 50% down payment. You can use these funds to support yourself in retirement.

Saving Money on Routine Costs of Homeownership

Even when you own a home outright, you still need to pay for maintenance, utilities, and property taxes. When you have a smaller, less costly home, these expenses are often substantially lower.

Is a Reverse Mortgage for Purchase Right for You?

Everyone’s retirement looks a little different — and what works for one person might not work for another. A reverse mortgage for purchase can be a smart move for some, but it’s not the right fit for everyone. That’s why it’s so important to take your time, do your homework, and explore all your options before making a decision. Take a minute to see how much equity you can unlock with our reverse mortgage calculator.

Thinking about a reverse mortgage for purchase? We’re here to help. Our team knows the ins and outs of reverse mortgages and can walk you through how they work

Contact us here, and let’s get started.