A reverse mortgage purchase enables seniors age 62 or older in state to purchase a new house with HECM loan proceeds. The principal benefit to the senior is the fact that transaction only involves one set of settlement costs vs. buying a house and getting a reverse mortgage after, which will incur 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 abide by all HECM standards, each of the standard rules apply in combination with a few new guidelines.
A few of the fundamentals?
Can buy existing 1 to 4 unit properties
Home will need to serve as primary residence
Once HECM purchase is finished, no further liens are allowed (Loan provider in 1st position, HUD in silent 2nd)
Must supply financial investment at closing from permitted funding source, see below for information and facts
Will need to reside in house within 60 days of closing
Newly constructed houses require certificate of occupancy
There are some variations between a HECM for purchase and a conventional HECM for seniors in state.
The main differences concern the properties types which are permitted, the funds needed at closing, the involvement of a realtor in the loan process, the recommendation of a qualified house inspection, and specific closing costs.
Check out these other pages of information:
Arden-Arcade, Town and Country Village, Ben Ali, Arden Town, Del Paso Heights
Permitted Properties
Same as standard HECM loans
Ineligible Properties
Cooperative units
Manufactured housing constructed prior to 1976 and without permanent foundation
Bed and breakfast properties, boarding houses
What is the financial investment requirement?
At closing, HECM borrowers will have to supply 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 related expenses which are not financed or offset by other allowed FHA funding sources. Basically, the proceeds from the reverse mortgage as well as any money from the sale of the old house (or from the consumer’s savings) has to be enough to buy the new house outright.
The difference between principal limit and sales price for the house in state includes any HECM loan related costs which are not financed or offset by other allowable funding source. Consumers could provide a larger down payment amount as a way to keep a portion of HECM proceeds for future draws.
What are permitted investment sources?
Consumer can only use their own money or money obtained from selling properties and assets.
Withdrawals from consumer’s savings or pension account are satisfactory.
Mortgage lenders will be required to verify the source of all resources before closing. A verification of deposit, along with the latest bank statement, could be used to verify savings and checking accounts. Whether there is a substantial increase in an account, or the account was opened fairly recently, the financial institution will need to obtain a credible justification of the source of those funds. This kind of paperwork has to be made available in the FHA case binder. Failure to provide the required documents may result in a notice of rejection and postponement of endorsement.
What funding resources are ineligible?
Gifts
Loan discount points
Mortgage rate buy downs
Closing cost assistance
Builders 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 (generally known as “gap financing”) or take part in other temporary financing strategies to satisfy the financial investment requirement or payment of closing costs necessary to close the purchase transaction. This restriction is comprised of subordinate liens, unsecured loans, cash withdrawals from charge cards, seller financing as well as any other lending obligations that can not be satisfied at closing.
What is 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 house, the home inspection, etc.
Selecting a Property for Purchase & Obtaining an Home inspection
All seniors are strongly encouraged by HUD to have a home inspection from a licensed certified home inspector (It’s advised but is not mandatory)
Assesses the physical condition: structure, construction, and mechanical systems
Describes items that ought to be fixed or replaced before the scheduled closing date
Estimates the remaining practical life of the key 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
Needs to be completed prior to closing by seller
Include in purchase agreement
Buyer cannot put any cash into repairs before they own the house
Writing an offer
Must state offer conditional on satisfactory inspection conducted by qualified inspector
Borrower might want attorney to review – increases fees but will be worth it
Client can cancel transaction at any time prior to closing however, this could affect earnest money deposit
Settlement Fees for a
Standard Reverse Home Loan settlement fees plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you need to know about local reverse mortgage experts:
There’s no 3 day right of rescission contrary to traditional HECM. The 3-day right of rescission period isn’t applicable to HECM for Purchase transactions. Consequently, all initial advances can be paid at the time of closing by the escrow company. However, FHA encourages loan companies to get their counsel’s opinion to ensure compliance with Federal or state laws.
Seller incentives aren’t applicable to reverse mortgages.
Existing HECM borrowers who engage in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and mortgage companies will have 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 using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Mortgage lenders must make sure 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 complete and a C of O or similar has been issued;
3) Any construction 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.