A reverse mortgage purchase allows seniors age 62 or older in state to buy a new house with HECM loan proceeds. The primary benefit to the senior is the transaction only involves one set of closing costs vs. purchasing a house and obtaining a reverse mortgage after, which will incur two complete sets of closing costs. Created by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Eligible seniors must abide by all HECM standards, each of the standard guidelines apply along with some new regulations.
A few of the fundamentals?
Can buy existing 1 to 4 unit properties
Property must serve as primary residence
Once HECM purchase is complete, no additional liens are acceptable (Loan provider in 1st position, HUD in silent 2nd)
Must provide monetary investment at closing from permitted funding source, see below for information and facts
Will have to live in house within 60 days of close of escrow
Newly built homes require certificate of occupancy
There are a few differences between a HECM for purchase and a classic HECM for seniors in state.
The main differences concern the properties types that are allowed, the funds needed at close of escrow, the involvement of a real estate agent in the home loan process, the recommendations of a professional house inspection, and specific closing costs.
Check out these other pages of information:
Trails End Mobile Home Park, Capitol City Recreational Vehicle and Mobile Home Park, Riverside Mobile Home Park, Mikon, Walnut Trailer Villa
Eligible Properties
Same as traditional HECM mortgages
Ineligible Properties
Cooperative units
Manufactured housing built prior to 1976 and without permanent foundation
Bed and breakfast properties, boarding houses
What’s the financial investment requirement?
At close of escrow, HECM borrowers will have to produce a monetary investment which will be applied to fulfill the difference between the HECM principal limit and the purchase price for the house, plus any HECM loan associated fees which are not financed or offset by other allowed FHA funding sources. This means that, the funds from the reverse mortgage as well as any money from the sale of the old house (or from the consumer’s savings account) must be enough to purchase the new house outright.
The difference between principal limit and sales price for the house in state includes any HECM home loan related fees which are not financed or offset by other allowable funding source. Homeowners could provide a larger down payment amount to be able to maintain a percentage of HECM funds for future draws.
What are permitted funding options?
Homeowner can only make use of their own money or funds obtained from selling properties and assets.
Withdrawals from consumer’s savings or retirement account are usually satisfactory.
Loan providers are going to be required to verify the origin of all the money before close of escrow. A verification of deposit, in addition to the most recent bank statement, may be used to verify savings and checking accounts. When there is a substantial increase in an account, or the account was opened fairly recently, the financial institution will need to obtain a credible explanation of the source of those funds. This sort of documents must be supplied in the FHA case binder. Failing to provide the necessary documents may result in a notice of rejection and delay of endorsement.
Which funding resources are ineligible?
Gifts
Loan discount points
Interest 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)
Homeowners will not obtain a bridge loan (also called “gap financing”) or engage in other temporary financing strategies to meet the monetary investment obligation or payment of closing costs necessary to close the purchase transaction. This limitation encompasses subordinate liens, personal loan, cash withdrawals from credit cards, seller financing and also any other lending commitments that cannot be satisfied at closing.
What’s the Role of the Realtor?
Seniors in state must consider a written contract – you need to include contingencies for the sale of the senior’s previous house, the home 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 qualified home inspector (It’s advised but not required)
Examines the soundness: structure, construction, and mechanical systems
Determines items that need to be repaired or replaced before the scheduled close of escrow date
Estimates the remaining practical life span of the main 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
Needs to be completed prior to closing by seller
Include in purchase agreement
Buyer cannot put any money into repairs before they own the house
Writing an offer
Must state offer contingent on sufficient inspection performed by qualified home inspector
Borrower might want attorney to review – will increase expenses but will be worth it
Client may cancel transaction at any time before closing but this could affect earnest money deposit
Closing Costs for a
Standard HECM settlement fees plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you need to understand about reverse mortgage near me:
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. As a result, all initial advances could be paid on the day of closing by the escrow officer. However, FHA encourages loan companies to get their counsel’s opinion to ensure compliance with Federal or state laws.
Seller incentives are not 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 have to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies that have been approved 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 providers will need to be sure the house, when used as collateral for the HECM, satisfies the following property requirements:
1) It is the borrower’s primary residence;
2) Construction is completed and a C of O or its equivalent was issued;
3) Any construction home loan financing for the house, 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 liens against the house exist.