A reverse mortgage purchase enables seniors age 62 or older in state to purchase a new home with HECM loan proceeds. The principal benefit to the senior is the transaction only requires one set of settlement costs vs. purchasing a home and obtaining a reverse mortgage afterwards, which will 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 requirements, all of the basic regulations apply together with some new regulations.

A few of the fundamentals?

Can purchase existing 1 to 4 unit properties
Property must serve as principal residence
Once HECM purchase is completed, no further liens are acceptable (Lender in 1st position, HUD in silent 2nd)
Will have to provide financial investment at closing from allowed funding source, see below for details
Must live in home within Sixty days of closing
Newly constructed homes needs to have certificate of occupancy

There are some differences between a HECM for purchase and a classic HECM for seniors in state.

The key differences concern the properties types that are eligible, the cash needed at closing, the assistance of a real estate professional in the home loan process, the recommendations of a certified home inspection, and specific settlement fees.

Check out these other pages of information:

Ben Ali, Del Paso Heights, Swanston, Town and Country Village, North Sacramento

Permitted Properties

Same as regular HECM mortgages

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

What is the financial investment requirement?

At closing, HECM borrowers will need to produce a financial investment which will be applied to satisfy the difference between the HECM principal limit and the sales price for the home, plus any HECM loan connected fees that are not financed or offset by other permitted FHA funding sources. This means that, the funds from the reverse mortgage and any cash from the sale of the old home (or from the homeowner’s savings) has to be enough to purchase the new home outright.

A real difference between principal limit and sales price for the home in state includes any HECM home loan related fees that are not financed or offset by other permitted funding source. Consumers may provide a larger investment amount to be able to retain a percentage of HECM funds for future draws.

What are allowed funding resources?

Homeowner may make use of their own capital or cash obtained from the sale of property and assets.
Withdrawals from homeowner’s savings or pension account will be acceptable.

Loan providers are going to be required to verify the source of all money in advance of closing. A verification of deposit, together with the most up-to-date bank statement, may be used to verify savings and checking accounts. Whether there is a significant increase in an account, or the account was opened up fairly recently, the lending company must obtain a valid explanation of the source of those funds. This sort of paperwork has to be presented in the FHA case binder. Failing to provide the specified 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
Building contractors incentives
Seller contributions or property owner financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)

Consumers will not obtain a bridge loan (also called “gap financing”) or engage in other temporary financing strategies to fulfill the financial investment obligation or payment of settlement fees required to finalize the purchase transaction. This limitation may include subordinate liens, unsecured loans, cash withdrawals from credit cards, seller financing as well as any other lending commitments that cannot be satisfied at closing.

What is the Role of the Real Estate Agent?

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

Selecting a Home for Purchase & Obtaining an Home inspection

All seniors are strongly encouraged by HUD to have a home inspection from a licensed qualified professional home inspector (This is recommended but is not mandatory)

Evaluates the physical condition: structure, construction, and mechanical systems
Determines issues that should be fixed or replaced prior to the scheduled closing date
Estimates the remaining practical life span of the main systems, equipment, structure, and finishes
Buyers can be at the inspection to ask questions regarding the condition and maintenance

Required Repairs

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

Writing an offer

Must state offer contingent on sufficient inspection conducted by qualified home inspector
Borrower might wish attorney to review – will increase expenses but will be worth it
Client can cancel transaction any time before closing however, this could affect earnest money deposit

Settlement Costs for a

Standard Reverse Loan fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you ought to know about local reverse mortgage lenders:

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 can be paid at the time of closing by the escrow officer. However, FHA encourages financial institutions to seek their counsel’s opinion to ensure compliance with Federal or state laws.
Seller concessions 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 financial institutions will need to enter 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 using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Loan providers will need to ensure the home, when used as collateral for the HECM, satisfies the following property requirements:

1) It is the borrower’s principal residence;

2) Construction is finished and a occupancy certificate or similar 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, during closing, no other liens against the home exist.