A reverse mortgage purchase enables seniors age 62 or older in state to purchase a new property with HECM loan proceeds. The primary benefit to the senior is the fact that purchase only requires one set of closing costs vs. buying a property and obtaining a reverse mortgage after, which would incur two complete sets of closing costs. Created by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Eligible seniors must abide by all HECM standards, all of the standard rules apply together with some new guidelines.

A few of the basics?

Can purchase existing 1 to 4 unit property
House will need to serve as principal residence
Once HECM purchase is finished, no further liens are allowed (Lender in 1st position, HUD in silent 2nd)
Will need to provide financial investment at closing from permitted funding source, see below for details
Need to occupy property within Sixty days of closing
Newly built homes require certificate of occupancy

There are several variations between a HECM for purchase and a conventional HECM for seniors in state.

The major differences concern the properties types which are permitted, the cash required at closing, the involvement of a real estate agent in the home loan process, the recommendations of a professional property inspection, and specific settlement costs.

Check out these other pages of information:

Arcade, Town and Country Village, Arden Town, Ben Ali, Swanston

Permitted Properties

Identical to conventional HECM mortgages

Ineligible Properties
Cooperative units
Manufactured homes built prior to 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses

What’s the financial investment requirement?

At closing, HECM borrowers will need to supply a financial investment which is to be applied to satisfy the difference between the HECM principal limit and the purchase price for the property, along with any HECM loan associated expenses that aren’t financed or offset by other allowable FHA funding sources. Basically, the funds from the reverse mortgage as well as any money from the sale of the old property (or from the homeowner’s savings account) must be enough to buy the new property outright.

The difference between principal limit and sales price for the property in state includes any HECM home loan related fees that aren’t financed or offset by other allowable funding source. Consumers could provide a larger down payment amount to be able to maintain a percentage of HECM funds for future draws.

What are permitted funding resources?

Homeowner can only use their own capital or capital obtained from the sale of financial assets.
Withdrawals from homeowner’s savings or retirement account will be satisfactory.

Mortgage companies will be required to verify the source of all money prior to closing. A verification of deposit, together with the most current bank statement, could be used to verify savings and checking accounts. Whether there is a significant increase in an account, or the account was opened up recently, the lending company will need to obtain a legitimate clarification of the source of those funds. This kind of paperwork must be made available in the FHA case binder. Failing to provide the mandatory documents 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
Home owner contributions or seller financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)

Consumers will not obtain a bridge loan (also known as “gap financing”) or take part in other temporary financing strategies to fulfill the financial investment requirement or payment of settlement costs needed to finalize the purchase transaction. This limitation may include subordinate liens, unsecured loans, cash withdrawals from charge cards, seller financing and also any other lending commitments that can not be satisfied at closing.

What’s the Job of the Real Estate Agent?

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

Choosing a House for Purchase & Getting an Home inspection

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

Examines the soundness: structure, construction, and mechanical systems
Determines items which need to be repaired or replaced before the scheduled closing date
Estimates the remaining useful life of the main systems, equipment, structure, and finishes
Buyers can be at the inspection to ask questions on the condition and maintenance

Required Repairs

Health and safety or structural integrity issues
Need to be completed 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 satisfactory inspection conducted by qualified home inspector
Borrower may want attorney to review – raises expenses but can be worth it
Client can cancel transaction any time prior to closing however this could affect earnest money deposit

Settlement Costs for a

Standard Reverse Mortgage fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should know about reverse mortgage near me in California:

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

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

2) Construction is complete and a occupancy certification or its equivalent was issued;

3) Any construction home loan financing for the property, 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, during closing, no liens against the property exist.