A reverse mortgage purchase makes it possible for seniors age 62 or older in state to purchase a new home with HECM loan proceeds. The principal benefit to the senior is that the purchase only involves one set of settlement costs vs. purchasing a home and obtaining a reverse mortgage thereafter, which would have two complete sets of settlement costs. Developed by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Eligible seniors must comply with all HECM standards, each of the standard rules apply in addition to some new regulations.

A few of the fundamentals?

Can purchase existing 1 to 4 unit property
Home must serve as primary residence
Once HECM purchase is done, no additional liens are permitted (Financial institution in 1st position, HUD in silent 2nd)
Will have to provide financial investment at closing from permitted funding source, see below for requirements
Will have to live in home within Sixty days of close of escrow
Newly built properties must have certificate of occupancy

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

The main distinctions concern the properties types which are qualified, the cash needed at close of escrow, the involvement of a real estate broker in the mortgage loan process, the recommendation of a skilled professional home inspection, and certain settlement fees.

Check out these other pages of information:

Ramona, Brighton, Polk, Manlove, Arden Town

Eligible Properties

Same as standard HECM loans

Ineligible Properties
Cooperative units
Manufactured housing constructed before 1976 and without permanent foundation
Bed and breakfast properties, boarding houses

What’s the financial investment requirement?

At close of escrow, HECM borrowers need to produce a financial investment which is applied to fulfill the difference between the HECM principal limit and the sales price for the home, along with any HECM loan connected expenses that are not financed or offset by other allowable FHA funding sources. In other words, the funds from the reverse mortgage as well as any funds from the sale of the old home (or from the homeowner’s personal savings) must be enough to buy the new home outright.

The primary difference between principal limit and sales price for the home in state includes any HECM mortgage loan related fees that are not financed or offset by other permitted funding source. Homeowners could provide a larger investment amount as a way to retain a percentage of HECM funds for future draws.

What are permitted investment options?

Borrower may use their personal funds or money obtained from the sale of assets.
Withdrawals from homeowner’s savings or retirement account are satisfactory.

Mortgage lenders are going to be required to verify the origin of all funds prior to close of escrow. A verification of deposit, together with the most recent bank statement, could be used to verify savings and checking accounts. When there’s a substantial increase in an account, or the account was opened up fairly recently, the mortgage lender will have to get a valid clarification of the source of those funds. Such documentation must be supplied in the FHA case binder. Failing to supply the mandatory documentation may lead to a notice of denial and postponement of endorsement.

What funding sources are ineligible?

Gifts
Loan discount points
Mortgage rate buy downs
Closing cost assistance
Builders incentives
Seller contributions or home owner financing
Charge card advances
Secured or non-secured loans from another asset (car, home equity)

Homeowners will not get a bridge loan (also referred to as “gap financing”) or engage in other interim financing techniques to meet the financial investment obligation or payment of settlement fees needed to complete the purchase transaction. This limitation includes subordinate liens, personal loan, cash withdrawals from charge cards, seller financing and also any other lending commitments that can’t be satisfied at closing.

What’s the Purpose of the Real Estate Agent?

Seniors in state must consider a written arrangement – make sure you include contingencies for the sale of the senior’s previous home, the home inspection, etc.

Choosing a Property for Purchase & Obtaining an Home inspection

All seniors are strongly encouraged by HUD to have a home inspection from a licensed professional home inspector (This is advised however it is not mandatory)

Assesses the physical condition: structure, construction, and mechanical systems
Identifies items which should be repaired or replaced before the scheduled close of escrow date
Estimates the remaining useful life span of the major systems, equipment, structure, and finishes
Buyers should be at the inspection to ask questions regarding the condition and maintenance

Required Repairs

Health and safety or structural integrity issues
Must be completed prior to closing by seller
Include in purchase agreement
Buyer cannot put any money into repairs before they own the home

Writing an offer

Must state offer conditional on acceptable inspection conducted by qualified home inspector
Borrower might wish attorney to review – raises expenses but can be worth it
Client may cancel transaction at any time before closing but this may affect earnest money deposit

Settlement Fees for a

Standard Reverse Home Loan fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should know about reverse mortgage company:

There’s no three day right of rescission contrary to traditional HECM. The three-day right of rescission period isn’t applicable to HECM for Purchase transactions. Consequently, all initial advances could be paid on the day of closing by the escrow officer. However, FHA encourages loan companies to seek their counsel’s opinion to assure compliance with Federal or state laws.
Seller concessions aren’t applicable to reverse mortgages.
Existing HECM borrowers who participate in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and loan providers need to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which are approved to provide reverse mortgage counseling, must counsel those that anticipate using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Mortgage lenders are required to be sure that the home, when utilized as collateral for the HECM, meets the following property requirements:

1) It is the borrower’s primary residence;

2) Construction is complete and a C of O or similar has been issued;

3) Any construction mortgage loan financing for the home, which will serve 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 other liens against the home exist.