A reverse mortgage purchase makes it possible for seniors age 62 or older in state to purchase a new property with HECM loan proceeds. The principal benefit to the senior is the transaction only requires one set of settlement costs vs. purchasing a property and obtaining a reverse mortgage after, which will incur two complete sets of settlement costs. Developed by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Qualified seniors must adhere to all HECM requirements, all of the basic guidelines apply in addition to some new rules and regulations.

A few of the basics?

Can purchase existing 1 to 4 unit property
House must serve as primary residence
Once HECM purchase is finished, no additional liens are acceptable (Financial institution in 1st position, HUD in silent 2nd)
Must provide financial investment at closing from permitted funding source, see below for information and facts
Must live in house within 60 days of closing
Newly built properties will need to have certificate of occupancy

There are some differences between a HECM for purchase and a traditional HECM for seniors in state.

The major differences concern the properties types that are eligible, the funds needed at closing, the assistance of a realtor in the home loan process, the recommendations of a professional property inspection, and specific settlement costs.

Check out these other pages of information:

Oak Park, Sacramento, West Sacramento Trailer Park, Fruitridge Pocket, Peethill

Eligible Properties

Same as regular HECM loans

Ineligible Properties
Cooperative units
Manufactured housing constructed before 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses

What’s the money investment requirement?

At closing, HECM borrowers will need to produce a financial investment which will be applied to satisfy the difference between the HECM principal limit and the purchase price for the house, as well as any HECM loan associated fees that aren’t financed or offset by other allowed FHA funding sources. Basically, the proceeds from the reverse mortgage and any money from the sale of the old house (or from the consumer’s personal savings) has to be enough to buy the new house outright.

The main difference between principal limit and sales price for the house in state also includes any HECM home loan related costs that aren’t financed or offset by other allowable funding source. Homeowners could provide a larger down payment amount to be able to maintain a portion of HECM proceeds for future draws.

What are permitted financing options?

Borrower may only make use of their personal money or capital obtained from selling financial assets.
Withdrawals from consumer’s savings or retirement account will be satisfactory.

Loan providers are going to be required to confirm the original source of all money prior to closing. A verification of deposit, together with the most current bank statement, may be used to confirm savings and checking accounts. Whether there is a significant increase in an account, or the account was opened fairly recently, the lender will need to get a legitimate explanation of the source of those funds. This sort of paperwork has to be made available in the FHA case binder. Failure to provide the necessary documents may lead to a notice of rejection and delay of endorsement.

Which funding sources are ineligible?

Gifts
Loan discount points
Mortgage rate buy downs
Settlement cost assistance
Building contractors incentives
Home owner contributions or seller financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)

Homeowners may not get a bridge loan (also referred to as “gap financing”) or participate in other temporary financing techniques to fulfill the financial investment requirement or payment of settlement costs needed to complete the purchase transaction. This restriction includes subordinate liens, personal loan, cash withdrawals from charge cards, seller financing and any other lending commitments that can’t be satisfied at closing.

What’s the Role of the Real Estate Broker?

Seniors in state should consider a written contract – it is best to include contingencies for the sale of the senior’s previous property, the house inspection, etc.

Deciding on a House for Purchase & Getting an Home inspection

All seniors are strongly encouraged by HUD to get a home inspection from a licensed professional home inspector (It’s suggested but is not mandatory)

Assesses the physical condition: structure, construction, and mechanical systems
Describes items that need to be fixed or replaced before the scheduled closing date
Estimates the remaining useful life span of the main systems, equipment, structure, and finishes
Buyers can be at the inspection to ask questions regarding the condition and maintenance

Required Repairs

Health and safety or architectural integrity issues
Have to be finished prior to closing by seller
Include in purchase agreement
Buyer cannot put any money into repairs before they own the property

Writing an offer

Must state offer conditional on sufficient inspection conducted by qualified home inspector
Borrower might wish attorney to review – raises expenses but may be worth it
Client can cancel transaction anytime prior to closing however, this may affect earnest money deposit

Settlement Costs for a

Standard Reverse Home Loan fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should consider about jumbo reverse mortgage:

There is no 3 day right of rescission contrary to traditional HECM. The 3-day right of rescission period is not applicable to HECM for Purchase transactions. Therefore, all initial advances could be paid at the time of closing by the escrow company. However, FHA encourages lenders to seek their counsel’s opinion to ensure compliance with Federal or state laws.
Seller incentives aren’t applicable to reverse mortgages.
Existing HECM borrowers who participate in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and loan companies will need to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies that have been authorized to provide reverse mortgage counseling, must counsel individuals who anticipate using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Loan providers will need to ensure the house, when used as collateral for the HECM, meets the following property requirements:

1) It’s the borrower’s primary residence;

2) Construction is completed and a CO or similar was issued;

3) Any construction home loan financing for the house, which will function as the collateral for the HECM loan, is satisfied and the HECM liens will be in a first and second lien position and, at the time of closing, no liens against the house exist.