Can you use a reverse mortgage to buy a home in Arizona? HECM for Purchase at 62+

Please note: Greg Slaughter is a real estate agent, not a lender, financial advisor, tax advisor or attorney. This page is general information from HUD, the Consumer Financial Protection Bureau and other federal sources. It isn't financial, tax or legal advice. Loan rules, limits and fees change, and every situation is different. Please talk with a HUD-approved HECM counselor, an FHA-approved lender and your own tax professional before you decide.

The short answer

You want to move to Sun City, Sun City West, Sun City Grand, PebbleCreek or another West Valley 55+ community, keep more of your savings, and skip a monthly mortgage payment. A HECM for Purchase is one way buyers do that. Here's how it works, what it costs and the questions to ask, with official sources.

How it works See a cost example

How much down payment do you need?

There's no single percentage. The HECM amount depends on the age of the youngest borrower (or eligible non-borrowing spouse), the interest rate, and the lesser of the appraised value, the HECM limit or the sales price (HUD). The older you are and the lower the rate, the more the loan covers and the less you bring. The CFPB says to expect a relatively large down payment from cash or equity in your current home.

• Where the money can come from: cash on hand, the sale of your current home or other assets, and allowed seller contributions (HUD Handbook 4000.1).
• What can't count: sweat equity, trade equity, rent credit or premium pricing (HUD Handbook 4000.1).
• Seller help: sellers and other interested parties may pay up to 6% of the price toward origination fees, other closing costs, prepaid items and the up-front mortgage insurance, not toward the down payment itself (HUD Handbook 4000.1).
• Bring more if you like: a larger down payment can leave part of the HECM available as a line of credit for later (HUD Handbook 4000.1).

Selling a home elsewhere to fund the purchase? See Selling your home after 55: capital gains rules.

What to know in a West Valley 55+ community

Your HOA and recreation dues still have to be paid

• Federal regulators list HOA fees with property taxes and insurance as property charges you must keep paying (OCC). Falling behind on them can make the loan come due (CFPB).
• Lenders look at your ability to pay future property taxes and homeowners insurance, and may require you to set aside loan money for them. That set-aside doesn't cover HOA or condo fees, so those stay in your monthly budget (CFPB).
• Budget the full cost first with the Cost to Live calculator and the community fee guides.
• Turning 65 or older? The Senior Freeze can help hold down your property value for tax purposes. See Arizona property tax breaks for seniors.

Age rules: 55 for the community, 62 for the loan

Most West Valley 55+ communities are age-restricted under the federal Housing for Older Persons Act (HOPA), and each sets its own age rules, so check the community before you buy. A HECM has its own rule: the youngest borrower must be 62. A younger spouse can be listed as an eligible non-borrowing spouse. Their age is used to figure the loan amount, and they must also attend counseling (HUD; 24 CFR 206.41).

Condos, patio homes and manufactured homes

• Single-family homes (including patio and garden homes on their own lot) are eligible property types (HUD Handbook 4000.1).
• Condos must be in an FHA-approved project, or the unit must get FHA Single-Unit Approval. Search a building on HUD's condo lookup (HUD Handbook 4000.1; HUD ML 2019-17). Sun City and Sun City West have many older condo buildings, so check this early.
• Co-op units aren't on FHA's list of HECM property types (HUD Handbook 4000.1). Ask before you make an offer.
• Manufactured homes can qualify only if they meet FHA's standards, including a permanent foundation and being titled as real estate (HUD Handbook 4000.1). Ask the lender before you tour.

Snowbirds and summers away

• The home must be where you live most of the year, so a winter-only home doesn't qualify (CFPB).
• Tell your lender if you'll be away more than 2 months. Away more than 6 months for non-medical reasons, and it may no longer count as your principal residence. More than 12 months in a row in a health care facility makes the loan due (CFPB).
• See the Snowbird & seasonal living guide.

Buying an older Sun City or Sun City West home? FHA’s appraisal can flag repairs, so read Buying an older 55+ home: inspection checklist.

Questions to ask before you choose

• You want to know how much cash you'd bring at your price, at today's rate, for the youngest borrower's age.
• You want each lender's origination fee, closing costs and rate in writing, so you can compare.
• You want to know what happens to a younger spouse if the older borrower passes away or moves into care.
• You want your heirs to understand the loan is due when the last borrower leaves, and that they can sell or pay it off. Neither you nor your heirs will have to pay back more than the home is worth (CFPB).
• You want to compare other choices too, like paying cash for a smaller home, a regular mortgage, or keeping your current home. A counselor walks you through these.