HECM for Purchase Explained: Buy a Home in Sioux Falls Without a Monthly Mortgage Payment
By Jeff Buum, Certified Reverse Mortgage Specialist (CRMS) | Fairway Heartland | Sioux Falls, SD | NMLS #400290
jeffbuummortgage.com · 9 min read · Reverse Mortgage
Most South Dakotans who have heard of a reverse mortgage think of it as something you do with a home you already own. What very few people know, including many realtors in the Sioux Falls area, is that a reverse mortgage can also be used to buy a new home.
The program is called HECM for Purchase, and it allows homebuyers who are 62 or older to purchase a new primary residence using a reverse mortgage as the financing, with no monthly mortgage payment required for as long as they live in the home. According to Jeff Buum, a Certified Reverse Mortgage Specialist at Fairway Heartland in Sioux Falls, this is one of the most underused and least understood options available to South Dakota homebuyers 62 and older. This article explains exactly how it works.
What Is a HECM for Purchase?
A HECM for Purchase is a type of reverse mortgage designed specifically for buying a new home. Instead of using the loan to access equity in a home you already own, you use it to finance the purchase of a new one.
The basic structure is straightforward: the buyer brings a down payment to closing (typically 35 to 55 percent of the purchase price, depending on age and current interest rates), and the HECM loan covers the remainder. After closing, the buyer owns the home, and as long as they live there as their primary residence, pay property taxes and insurance, and maintain the property, no monthly mortgage payment is required.
The HECM for Purchase program was created by Congress in 2009 specifically to let seniors use a single transaction to purchase a home and obtain a reverse mortgage, rather than buying a home and then separately applying for a reverse mortgage later.
Who Is the HECM for Purchase Right For?
In South Dakota, the HECM for Purchase is often a strong fit for homeowners who want to:
Downsize from a larger family home into something smaller and more manageable, without taking on a monthly mortgage payment in retirement.
Move closer to family, children, or grandchildren in the Sioux Falls area or elsewhere in South Dakota, without stretching a retirement budget.
Purchase a home that better fits retirement life (single-story, lower maintenance, closer to medical facilities) without draining savings on a full cash purchase.
Preserve liquid assets that would otherwise be tied up in a cash purchase, keeping an investment portfolio intact.
Use the sale proceeds from a current home as the down payment on a new home, with no monthly payment following them.
A reverse mortgage isn’t the right fit for everyone; here’s how to tell whether a reverse mortgage is right for South Dakota homeowners.
How Does the Down Payment Work?
The down payment for a HECM for Purchase is larger than a traditional mortgage, typically between 35 and 55 percent of the purchase price. The exact percentage depends on three factors: the youngest borrower's age (older buyers qualify for a larger loan, meaning a smaller required down payment), current interest rates, and the appraised value or purchase price of the home, whichever is lower. The following simplified example is illustrative only:
| Detail | Illustrative figure |
|---|---|
| Purchase price | $350,000 |
| Buyer's age | 70 years old |
| Estimated HECM loan amount | Approximately $175,000–$200,000 |
| Required down payment | Approximately $150,000–$175,000 |
| Monthly mortgage payment | $0 — none required |
| Remaining liquid assets | All assets not used for the down payment remain invested |
These numbers are illustrative only; the actual loan amount and down payment for any situation depend on the borrower's age, the home's value, and current interest rates. Jeff Buum runs these numbers precisely in every consultation.
Where Can the Down Payment Come From?
The down payment for a HECM for Purchase can come from several sources:
Sale proceeds from a current home, the most common source for South Dakota homeowners who are selling a larger home and buying something smaller.
Personal savings or investment accounts.
Proceeds from the sale of other assets.
A gift from a family member, with documentation.
The down payment cannot come from another loan; it cannot be financed. The funds must come from the buyer's own assets or a documented gift.
What Are the Benefits Compared to a Cash Purchase?
Many South Dakotans who use the HECM for Purchase could afford to buy their new home outright in cash. So why use a reverse mortgage instead? Several reasons make it worth considering:
Preserve your portfolio: a full cash purchase removes a large sum from investments permanently. With a HECM for Purchase, the buyer puts 35–55% down and keeps the rest invested and growing.
No monthly payment: a traditional mortgage would require a monthly payment that reduces cash flow in retirement. A HECM for Purchase eliminates that obligation entirely.
Growing line of credit option: any unused portion of the HECM loan can be set up as a growing line of credit, available for future healthcare costs, home modifications, or emergencies.
Inflation hedge: by using home equity as a funding source rather than liquid investments, a buyer may be better positioned if inflation erodes purchasing power or markets underperform.
What South Dakota Realtors Should Know
For real estate professionals in the Sioux Falls area or anywhere in South Dakota, the HECM for Purchase is worth understanding deeply. Here is why it matters for a real estate business:
It expands the buyer pool. Many 62+ clients who don't qualify for a traditional mortgage, or who don't want another monthly payment, can still buy with a HECM for Purchase.
It simplifies the transaction. One closing, one set of documents, one process. The buyer purchases the home and obtains the reverse mortgage simultaneously.
It makes listings more accessible. A home listed at $400,000 that a 72-year-old buyer couldn't finance traditionally may be entirely accessible through a HECM for Purchase.
Jeff Buum welcomes the chance to connect with South Dakota realtors who want to understand this program better, and offers no-cost, no-obligation educational lunch-and-learns for real estate offices in the Sioux Falls area, a practical education on a tool that could help their clients.
Frequently Asked Questions
Is a HECM for Purchase a government benefit?
No. A HECM is an FHA-insured loan offered by a private lender, not a government benefit or entitlement. Interest and fees accrue over time, and the loan balance grows, and the borrower remains responsible for property taxes, homeowners insurance, and maintenance.
Can I ever owe more than the home is worth?
No. A HECM is a non-recourse loan, so neither the borrower nor their heirs will ever owe more than the home's value when it is sold.
Does the buyer own the home?
Yes. The buyer holds title to the home from closing, the same as with any other mortgage. The lender holds a lien, not ownership.
Is counseling required?
Yes. Every HECM borrower must complete independent counseling with a HUD-approved counselor before closing.
Interested in the HECM for Purchase? Let's run the numbers for your situation.
Jeff Buum · (605) 321-7303 · jeff.buum@fairwaymc.com · jeffbuummortgage.com/reverse-mortgage
