HECM for Purchase: Buying Your Next Home With a Reverse Mortgage in New Jersey

HECM for Purchase is an FHA-insured reverse mortgage that lets an eligible borrower buy a new principal residence and take out the reverse mortgage in the same transaction. You pay the difference between the loan proceeds and the price plus closing costs in cash, often from the sale of the home you're leaving, and there's no monthly mortgage payment, though property taxes, insurance and upkeep stay your job.

I'm Dennis Mark Interdonato with The Dennis Mark Group at Keller Williams Realty Ocean Living. I'm not a lender, and this isn't a loan recommendation. But when a client selling one home and buying the next tells me they're looking at this program, the sale and the purchase have to be planned around its rules. Here's what HUD and the CFPB say.

What is a HECM?

A Home Equity Conversion Mortgage is, in HUD's words, the only reverse mortgage insured by the U.S. Federal Government, and it's available only through an FHA-approved lender (HUD). Instead of making monthly payments to the lender, the loan balance grows over time and is repaid later.

How does HECM for Purchase work?

HUD says you can use a HECM to buy a primary residence if you can use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs. When you're downsizing, that cash often comes from selling the current home.

HUD's rules on that cash, from Mortgagee Letter 2024-06 (for case numbers assigned on or after April 29, 2024):

• Acceptable sources include cash on hand, cash from selling or liquidating assets, HECM proceeds and interested party contributions.
• Not acceptable: sweat equity, trade equity, rent credit and premium pricing.
• Seller help: interested parties, other than lenders and loan originators, can contribute up to 6 percent of the sales price toward origination fees, other closing costs, prepaid items and the upfront mortgage insurance premium. Discount points and interest rate buydowns aren't allowed as closing costs.

HUD's original program guidance, Mortgagee Letter 2008-33, says the borrower can't use a bridge loan, or "gap financing," for the cash, and must occupy the property within 60 days of closing. Ask your lender how those rules apply today.

Who qualifies under HUD's rules?

HUD's program summary lists these requirements (HUD):

• All borrowers must be at least 62 years old.
• The home must be the borrower's principal residence.
• Borrowers must complete a counseling session with a HUD-certified HECM counselor.
• Borrowers can't be delinquent on any federal debt, unless they've set up a repayment plan.

The property matters too. The CFPB says co-op units and some manufactured homes aren't eligible (CFPB), and HUD's 2008 guidance also excludes new construction without a certificate of occupancy. If you're comparing a co-op and a condo, that's a deciding factor. For 2026, HUD set the HECM maximum claim amount at $1,249,125 in all areas (HUD).

What does it cost, and what do you still pay?

The CFPB says closing costs on a reverse mortgage purchase are higher and there are no monthly mortgage payments. As a borrower you still have to pay property taxes and homeowners insurance on time, keep the home in repair, and live there as your principal residence (CFPB). If the next home is in a community with an association, add the fee to that list.

The loan typically comes due when you move out or when you die, and it can come due sooner if taxes or insurance go unpaid or the home isn't kept up (CFPB).

How does it fit a downsizing plan?

Because the cash usually comes from your sale, and HUD's guidance rules out bridge loans, the sale generally has to close first or on the same day. That shapes everything:

1. Know your number. What your current home should sell for decides how much cash you'll bring. Start on my home value page.
2. Talk to a counselor and a lender early, before you're under contract on either home.
3. Line up the closings. Same-day closings or a short rent-back after your sale keep you from moving twice.
4. Check the property type before you fall for a home.
5. Plan the move-in. The program expects you to live there.

The Downsizing Guide walks through how I line up both closings.

Where do you find a HUD-approved counselor?

HUD keeps a HECM counselor roster you can search, and the CFPB links to HUD's counseling agency lookup. HUD's line is (800) 569-4287. Bring your sale estimate and the price range of the next home to that session.

What should you ask the lender?

• How much would the HECM provide on the home I'm looking at, and how much cash would I need to bring?
• What are the total closing costs, including the mortgage insurance?
• Which seller contributions can apply, and to which costs?
• Is the home I'm considering an eligible property type?
• How do the timing rules fit my sale and my move-in date?

Bring the answers back to me, and we'll build the sale and the search around them.

Frequently Asked Questions

Can you use a reverse mortgage to buy a house in New Jersey?

Yes. HUD's HECM for Purchase lets an eligible borrower buy a principal residence and take out a HECM in one transaction, paying the difference in cash.

How much cash do I need?

The difference between what the HECM provides and the price plus closing costs. The lender figures the HECM amount, and a HUD-certified counselor walks you through it.

Can I buy a co-op with a HECM?

The CFPB says co-op units aren't eligible for a reverse mortgage purchase.

Do I make monthly payments on a HECM?

No monthly mortgage payments, but you still pay property taxes, homeowners insurance and upkeep, and you have to live in the home.

This is general information, not legal, tax or lending advice. A HUD-certified counselor and an FHA-approved lender confirm what applies to you.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• Using home equity to buy another property in New Jersey
• Selling your home and buying the next one
• The Downsizing Guide and how I plan a downsizing move
• Have a question this didn't answer? Send it to Dennis Mark.