HECM for Purchase: Buying a New Home with a Reverse Mortgage

HECM for Purchase, usually written H4P, is a single-transaction reverse mortgage that lets a borrower age 62 or older buy a new primary residence using a HECM as the financing. The borrower brings cash to closing for the portion the HECM does not cover; the HECM covers the rest, no monthly mortgage payment is owed, and the loan comes due when the borrower leaves the new home permanently. Created by Congress in the Housing and Economic Recovery Act of 2008 and operationalized by HUD in Mortgagee Letter 2008-33, H4P is governed by the same Handbook 4000.1 Section II.B rules as a standard HECM, with a few purchase-specific additions covered below.

Last reviewed 2026-05-20

The short version

A typical H4P transaction has three sources of funds at closing: the HECM principal limit (set by the PLF table using the borrower's age, the new home's purchase price, and the expected rate), the borrower's cash to close (the gap between the HECM principal limit, net of closing costs, and the purchase price), and any sale proceeds the borrower brings from the prior home. The HECM covers the larger share for older borrowers and a smaller share for younger ones, and the borrower covers the rest.

After closing the borrower owns the new home, holds title, and lives in it as their primary residence. The HECM accrues interest, FHA mortgage insurance, and any servicing fee against a balance that comes due at the same four maturity events as any HECM: the last borrower's death, a permanent move-out of more than 12 consecutive months, sale of the home, or default on property charges (taxes, insurance, HOA, maintenance) per HUD Handbook 4000.1, Section II.B.9.

H4P vs. a standard HECM vs. a conventional purchase

The three transactions answer different questions. A conventional purchase buys a home with monthly payments. A standard HECM keeps the current home and converts its equity to cash. H4P combines the buy and the equity conversion into one closing — useful when a borrower is downsizing or relocating and wants to preserve the cash from the prior sale rather than redeploy all of it into the new house.

The cash-to-close requirement

The defining mechanic of H4P is the cash-to-close gap. Because the HECM principal limit is always smaller than the purchase price (PLFs at age 62 are around 0.30 at current rates; at age 80, near 0.55), the borrower has to bring the difference plus closing costs in cash. The cash typically comes from the sale of the borrower's prior home, retirement savings, or both.

A worked example for a 72-year-old buying a $600,000 condo at a 6.5% expected rate:

• Purchase price: $600,000
• PLF at age 72, 6.5% expected rate: approximately 0.443
• HECM principal limit: 0.443 × $600,000 = $265,800
• Upfront FHA MIP (2.0% of purchase price): $12,000
• Origination fee (HUD cap): $6,000
• Other closing costs (counseling, appraisal, title, recording, lender fees): roughly $4,500
• HECM net at closing: $265,800 − $22,500 = $243,300
• Cash to close (the borrower brings): $600,000 − $243,300 = $356,700

Same purchase price, different ages, different cash-to-close: an 82-year-old at the same rate sees a PLF closer to 0.530, a principal limit of $318,000, a net of around $295,500, and a cash-to-close near $304,500. Older borrowers bring less cash; younger borrowers bring more. The instrument compresses the gap as the borrower ages because the PLF rises with age.

Estimate your H4P cash to close →

Full itemized closing costs live at HECM for Purchase closing costs.

Eligibility

H4P eligibility, per HUD Handbook 4000.1, Section II.B.5:

1. Minimum age 62. Same as a standard HECM. (Distinct from the jumbo purchase programs, which usually allow age 55.)
2. Pre-application HUD counseling. Mandatory and independent. The certificate is required before a lender pulls credit or orders an appraisal.
3. Primary-residence occupancy within 60 days of closing. Second homes, investment properties, and seasonal residences are ineligible.
4. Property eligibility. Single-family, two-to-four-unit (borrower in one unit), HUD-approved condominium, or HUD-approved manufactured housing. Cooperatives are ineligible.
5. Title. The borrower takes title in their own name or with eligible co-borrowers; limited Living Trust exceptions apply (Section II.B.7).
6. Financial-assessment requirements. Same evaluation as a standard HECM (Section II.B.6). A failed assessment may require a HUD Life Expectancy Set-Aside (LESA) to escrow future property charges, which reduces the cash available at closing.

When does H4P make sense?

The textbook H4P case is a downsizer who wants to preserve cash. A homeowner selling a $1.1 million long-time residence to buy a $600,000 single-story home or low-maintenance condo can use the sale proceeds for the cash-to-close, fund the rest with the HECM, and keep several hundred thousand dollars of the sale outside the new house — held as retirement liquidity, invested, or banked for long-term care.

A second pattern is the relocator who needs to buy before selling. The cash-to-close has to come from somewhere; borrowers sometimes bridge with a HELOC on the prior home, retirement-account draws, or a temporary family loan, then unwind the bridge after the prior home closes.

A third pattern is the right-sizer: a borrower whose current home no longer fits (stairs, distance from family, maintenance burden) who wants to move without adding a monthly mortgage payment at age 70.

When H4P does not make sense

Clear failure modes:

• Short holds. H4P closing costs run 3% to 6% of the purchase price; amortized over a two- or three-year stay, the per-year cost is high. The longer the hold, the better the economics.
• Insufficient cash-to-close. A younger borrower (62 to 65) at the top of their price range may need 50% to 60% of the purchase price in cash. If that cash does not exist, the deal does not close.
• Ineligible property. Second homes, investment properties, cooperatives, and non-HUD-approved condos. Verify property type before incurring counseling and appraisal cost.
• Large required LESA. A LESA reduces the HECM net dollar-for-dollar against projected lifetime property charges, which can render the deal infeasible.

What H4P costs over time

H4P requires no monthly payments, but interest, the 0.5% annual FHA mortgage insurance premium, and any lender servicing fee accrue to the balance. A $265,000 HECM balance growing at an effective 7.0% (note rate plus annual MIP) doubles in roughly 10 years. The home is sold or refinanced at the maturity event, the loan is paid off from proceeds, and any remaining equity goes to the borrower or the estate. The federal HECM is non-recourse under 24 CFR 206.125: neither the borrower nor the heirs ever owe more than the home is worth at sale.

Pre-application counseling is mandatory

The certificate is required before any lender can move forward. Sessions run 60 to 90 minutes, cost $125 to $200, and are conducted by HUD-approved counseling agencies (the HUD HECM Counseling Roster lists them). The counselor is independent of the lender and is required to discuss alternatives to the reverse mortgage.

FAQ

Estimate your H4P transaction

The calculator at /calculator/h4p takes the purchase price, age, and expected rate and returns the HECM principal limit, the cash-to-close, and the closing-cost breakdown. Estimates are inputs to a counseling conversation, not substitutes for one.

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