A reverse mortgage purchase allows seniors age 62 or older in state to purchase a new property with HECM loan proceeds. The key benefit to the senior is the fact that transaction only requires one set of settlement costs vs. buying a property and getting a reverse mortgage after, which will have two complete sets of settlement costs. Created by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Eligible seniors must adhere to all HECM requirements, each of the standard regulations apply together with some new rules and regulations.

What are the basics?

Can buy existing 1 to 4 unit properties
House will need to serve as principal residence
Once HECM purchase is complete, no additional liens are acceptable (Financial institution in 1st position, HUD in silent 2nd)
Will need to supply monetary investment at closing from permitted funding source, see below for details
Will have to reside in home within Sixty days of closing
Newly constructed houses will need to have certificate of occupancy

There are a few variations between a HECM for purchase and a classic HECM for seniors in state.

The main distinctions concern the properties types which are permitted, the money needed at closing, the involvement of a realtor in the home loan process, the recommendations of a professional property inspection, and certain closing costs.

Check out these other pages of information:

Ramona, Perkins, Brighton, Fruitridge Manor, Manlove

Eligible Properties

Identical to regular HECM mortgages

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

What is the monetary investment requirement?

At closing, HECM borrowers must produce a monetary investment that is to be applied to fulfill the difference between the HECM principal limit and the purchase price for the home, along with any HECM loan connected fees which are not financed or offset by other allowable FHA funding sources. This means that, the funds from the reverse mortgage as well as any funds from the sale of the old home (or from the homeowner’s savings) needs to be sufficient to buy the new home outright.

The difference between principal limit and sales price for the home in state also includes any HECM home loan related fees which are not financed or offset by other permitted funding source. Consumers may provide a larger down payment amount so that they can keep a portion of HECM funds for future draws.

What are permitted funding sources?

Consumer may use their own funds or money obtained from selling properties and assets.
Withdrawals from homeowner’s personal savings or pension account are usually acceptable.

Loan companies are going to be required to confirm the origin of all funds before closing. A verification of deposit, along with the most current bank statement, could be used to confirm savings and checking accounts. When there is a large increase in an account, or the account was opened recently, the mortgage lender will have to obtain a legitimate clarification of the source of those funds. This sort of documentation needs to be supplied in the FHA case binder. Failure to provide the required documentation may result in a notice of rejection and postponement of endorsement.

Which funding sources are ineligible?

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

Consumers may not obtain a bridge loan (also referred to as “gap financing”) or participate in other interim financing methods to meet the monetary investment obligation or payment of closing costs required to finalize the purchase transaction. This limitation may include subordinate liens, unsecured loans, cash withdrawals from charge cards, seller financing as well as any other lending obligations that cannot be satisfied at closing.

What is the Job of the Real Estate Agent?

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

Selecting a Home for Purchase & Obtaining an Inspection

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

Assesses the soundness: structure, construction, and mechanical systems
Specifies items that ought to be repaired or replaced prior to the scheduled closing date
Estimates the remaining useful life span of the major systems, equipment, structure, and finishes
Buyers should be at the inspection to ask questions about the condition and maintenance

Required Repairs

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

Writing an offer

Must state offer conditional on satisfactory inspection conducted by qualified inspector
Borrower might want attorney to review – raises costs but may be worth it
Client may cancel transaction any time prior to closing however, this could affect earnest money deposit

Settlement Costs for a

Standard HECM fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should consider about reverse mortgage loans:

There is no three day right of rescission unlike traditional HECM. The three-day right of rescission period isn’t applicable to HECM for Purchase transactions. Consequently, all initial advances can be disbursed on the day of closing by the settlement agent. However, FHA encourages loan companies to get their counsel’s opinion to assure compliance with Federal or state laws.
Seller incentives are not 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 mortgage companies must enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which have been authorised to provide reverse mortgage counseling, must counsel individuals who anticipate making use of the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Loan companies will have to ensure the home, when utilized as collateral for the HECM, satisfies the following property requirements:

1) It is the borrower’s principal residence;

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

3) Any construction home loan financing for the home, 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 home exist.