Home Equity Conversion Mortgages Help Baby Boomers Finance the Purchase of Their New Retirement Home

Home Equity Conversion Mortgages Help Baby Boomers Finance the Purchase of Their New Retirement Home

You may be familiar with the reverse mortgage option touted by Baby Boomer celebrities like Henry Winkler to help retirees stay in their homes, but did you know there’s a similar program to finance a home purchase? Known as HECM (Home Equity Conversion Mortgage) for Purchase, this FHA-insured loan helps buyers age 62 and older finance their home purchase. The mortgage does not require principal and interest payments and is repaid when the home is sold.

How HECM for Purchase Works

“The HECM for Purchase program helps people downsize or move closer to their grandkids without spending all their cash,” says a senior loan officer. “There’s an estimated $7 trillion in home equity among people age 62 and older, so this program helps people use that equity.”

The program is designed to boost retirement planning. “People worry about outliving their retirement money,” says a national director for builders and Realtors. “Borrowers can keep more of their cash as savings or to invest. At the same time, they don’t have to pay a mortgage, which lowers their spending.”

Basics of HECM for Purchase

The average HECM for Purchase borrower is 70.7 years old. HUD’s formula requires a down payment ranging from 45% to 60% of the purchase price, depending on the borrower’s age, interest rate, and home value. The older the borrower, the lower the down payment.

Example Scenario

A couple both aged 70 nets $400,000 on the sale of their home and wants to purchase a $500,000 home. HUD rules require a down payment of about 50%. They can borrow $250,000 with a HECM for Purchase loan. “This way they can keep $150,000 of their profit and essentially buy a $500,000 home for $250,000,” says an expert. The remaining $250,000 accrues interest over time and is repaid when the home is sold or the owners pass away.

Key Features of the Program

• At least one borrower must be age 62 or older.
• The home must be a primary residence.
• Borrowers undergo a financial assessment to ensure stability.
• No monthly principal or interest payments required.
• Borrowers and heirs are never responsible for loan deficits.
• Property taxes, insurance, and HOA fees must be maintained.

New Rules Benefit New-Construction Buyers

Recent HUD updates include:

• Reduced annual mortgage insurance fee from 1.25% to 0.5%.
• Lowered upfront mortgage insurance fee from 2.5% to 2%.
• Eliminated the Certificate of Occupancy requirement for applications.

Future of HECM for Purchase

While reverse mortgages remain a niche product, the program offers a strategic tool for retirees. “These loans work best for long-term homeowners,” says a specialist. “For shorter stays, traditional mortgages or cash may be preferable.”

Ultimately, the HECM for Purchase program provides retirees with a flexible financial option to leverage home equity while preserving savings and investments.