To determine the loan amount on either a Conventional or Reverse Mortgage purchase money loan the bank determines the amount they will lend and the buyer comes in with the remaining monies (in the form of a down-payment). Down-payment equals instant equity.
On a conventional loan the loan amount is determined by what the borrower qualifies for income and credit wise as well as the offered interest rate. On a Reverse Mortgage the loan amount is determined by the borrowers age (minimum 62 yrs. old), the value of the property and the offered interest rate.
If you have retired, would like to sell your existing home to upsize, downsize or move closer to friends and family, and do not want to have a mortgage payment then a Reverse Mortgage may be right for you.
Example using a Reverse Mortgage for Purchase loan based on a borrower 65 yrs. old:
You sell your current home for $350,000.
After paying commissions and closing costs, and paying off an existing mortgage of $100,000 your net proceeds are $222,000.
You would like to buy a new home for $350,000. In this scenario you would need a loan to complete the purchase as you are short $128,000 and you do not want to pull money from your savings account.
A Reverse Mortgage would lend $210,000. The down-payment required to complete the purchase is $140,000.
You will have $82,000 cash left over from the sale of departure home and no mortgage payments as long as you occupy the property as your primary residence.