The US Department of Housing and Urban Development (HUD) unveiled the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) for Purchase Program. HECMs, commonly referred to as reverse mortgages, were approved for use to purchase a new principal residence in the Housing and Economic Recovery Act of 2008. In the HECM for Purchase program title of the property that is to be occupied as principal residence is transferred to the buyer. At closing, the HECM first and second liens will be the only liens against the property. Cooperative units, boarding houses, bed and breakfast establishments, and certain existing manufactured homes are not eligible for this program.

Buyers are required to have cash in hand or cash from the liquidation of assets for the required monetary investment. Loan fees paid by the purchaser may be used as part of the required cash investment. At closing, borrowers may be required to provide an additional monetary investment to satisfy any difference between the HECM principal mortgage limit and the sales price of the property. Gap financing, or bridge loans, may not be used to meet the monetary investment requirement or to pay any closing costs associated with the transaction.

Buyers are warned against being coerced into property flipping schemes or purchasing distressed homes in need of substantial repairs but sold at or above market rates. Lenders must take steps to ensure that only current owners sell properties that will be financed with FHA-insured mortgages. Resale of a property may not occur in 90 days or less from the last sale date. Resales that occur between 90 and 180 days where the new sale price exceeds 100 percent of the previous sales price will require additional documentation validating the property value. HUD-approved counseling agencies are available to provide reverse mortgage counseling.