How it works
A HECM for Purchase — H4P — combines buying a home and taking a reverse mortgage into a single closing. You bring a down payment, the reverse mortgage covers the rest, and there is no monthly mortgage payment for as long as you live there.
The down payment is large: roughly 45% to 60% of the purchase price, depending on your age. That is the trade. In exchange you keep the remainder of your sale proceeds instead of sinking all of it into the new house.
A worked example
Margaret is 72. She sells the family home for $700,000, clear. She wants a $500,000 single-storey place closer to her daughter.
Paying cash: $500,000 into the new house, $200,000 left over, no mortgage payment.
With an H4P: she puts down about $280,000, the reverse mortgage covers the rest, and she still has no mortgage payment. She keeps roughly $420,000 instead of $200,000 — about $220,000 more in liquid savings, for the cost of a growing loan balance against a house she does not intend to leave.
Whether that is a good trade depends on what the extra liquidity is for. For long-term care costs, for a portfolio that has time to compound, or simply for not being asset-rich and cash-poor at 80, it is often a very good one. For money that will sit in a savings account earning less than the loan accrues, it is not.
What you can buy
- Single-family homes
- FHA-approved condominiums
- 2–4 unit properties where you occupy one unit
- Manufactured homes meeting FHA standards
- New construction — but only once a certificate of occupancy has been issued
It must become your principal residence within 60 days of closing.
The mistake that kills most files
Where the down payment comes from
Funds must be sourced and seasoned, and there are rules about what does not count. Most fatally: you cannot borrow the down payment. No bridge loan, no HELOC on the departing residence, no personal loan, no credit card advance. Sale proceeds, savings, retirement accounts, and documented gifts from family are all fine.
This is where H4P transactions collapse — usually at the last minute, when an underwriter traces the wire. If you are buying before you sell, raise it on the very first call, because the sequencing has to be planned from the start.
Why so few people use it
Two reasons, neither of them about the product. Real estate agents largely do not know it exists, so it never gets suggested. And the phrase “reverse mortgage” carries enough baggage that buyers dismiss it before hearing the mechanics.
The result is that seniors routinely pay all cash for a downsized home, tie up several hundred thousand dollars in an illiquid asset, and then find themselves short of money for care a decade later — with the equity sitting right there in a house they cannot spend.
Worth knowing before you start
- You still complete HUD counseling, before signing a purchase contract if possible.
- Closing costs are financed into the loan, as with any HECM.
- The obligations are identical: taxes, insurance, upkeep, occupancy.
- Sellers and their agents occasionally push back out of unfamiliarity. An experienced originator talking to the listing agent usually settles it in one call.
What this estimate is, and what it is not
These figures are an illustration for planning only — not a loan offer, not a commitment to lend, and not a guarantee of what you will receive. Your real numbers depend on a completed appraisal, the expected interest rate on the day your FHA case number is assigned, your existing mortgage payoff, and a HUD financial assessment. A reverse mortgage is a loan that must be repaid, not a government benefit. You remain responsible for property taxes, homeowners insurance and upkeep, and the loan can become due if you stop meeting those obligations.