A reverse mortgage purchase makes it possible for 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 purchase only requires one set of closing costs vs. buying a house and obtaining a reverse mortgage after, which will incur two complete sets of closing costs. Developed by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Qualified seniors must conform to all HECM requirements, each of the standard regulations apply along with a few new guidelines.

A few of the fundamentals?

Can purchase existing 1 to 4 unit properties
Property will need to serve as principal residence
Once HECM purchase is complete, no additional liens are permitted (Financial institution in 1st position, HUD in silent 2nd)
Must provide financial investment at closing from allowed funding source, see below for information and facts
Must occupy house within Sixty days of closing
Newly built homes have to have certificate of occupancy

There are several differences between a HECM for purchase and a traditional HECM for seniors in state.

The key differences concern the properties types which are qualified, the money needed at closing, the involvement of a real estate professional in the mortgage loan process, the recommendation of a professional house inspection, and certain settlement costs.

Check out these other pages of information:

Hagginwood, Del Paso Heights, Town and Country Village, Swanston, North Sacramento

Permitted Properties

Same as standard HECM mortgages

Ineligible Properties
Cooperative units
Manufactured homes constructed prior to 1976 and without permanent foundation
Bed and breakfast properties, boarding houses

What is the monetary investment requirement?

At closing, HECM borrowers need to supply a financial investment which is applied to fulfill the difference between the HECM principal limit and the purchase price for the house, in addition to any HECM loan connected expenses that are not financed or offset by other allowable FHA funding sources. This means that, the funds from the reverse mortgage as well as any cash from the sale of the old house (or from the borrower’s savings account) must be sufficient to purchase the new house outright.

The main difference between principal limit and sales price for the house in state includes any HECM mortgage loan related costs that are not financed or offset by other permitted funding source. Consumers could provide a larger down payment amount as a way to keep a portion of HECM funds for future draws.

What are allowed financing sources?

Homeowner may make use of their personal capital or funds obtained from selling property and assets.
Withdrawals from borrower’s personal savings or pension account are generally acceptable.

Lenders will be required to verify the source of all the resources before closing. A verification of deposit, along with 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 recently, the lender must obtain a legitimate justification of the source of those funds. This sort of documentation must be made available in the FHA case binder. Failing to supply the specified paperwork may lead to a notice of rejection and postponement of endorsement.

Which funding resources are ineligible?

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

Consumers may not obtain a bridge loan (also called “gap financing”) or engage in other temporary financing methods to satisfy the financial investment obligation or payment of settlement costs necessary to finalize the purchase transaction. This restriction encompasses subordinate liens, personal loan, cash withdrawals from charge cards, seller financing as well as any other lending obligations that cannot be satisfied at closing.

What is the Role of the Realtor?

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

Choosing a House for Purchase & Obtaining an Home inspection

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

Assesses the physical condition: structure, construction, and mechanical systems
Identifies items which should be fixed or replaced prior to the scheduled closing date
Estimates the remaining useful life of the main systems, equipment, structure, and finishes
Buyers could be at the inspection to ask questions regarding the condition and maintenance

Required Repairs

Health and safety or structural integrity issues
Must 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 contingent on acceptable inspection done by qualified home inspector
Borrower may wish attorney to review – will increase expenses but will be worth it
Client can cancel transaction any time before closing however, this may affect earnest money deposit

Closing Costs for a

Standard Reverse Loan closing costs plus:

Recording fees
Transfer taxes
Varies from state-to-state

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

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. Therefore, all initial advances could be paid at the time of closing by the escrow officer. However, FHA encourages loan companies to get 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 companies 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.
Lenders are required to be sure that the house, when utilized as collateral for the HECM, meets the following property requirements:

1) It is the borrower’s principal residence;

2) Construction is complete and a certificate of occupancy or similar has been issued;

3) Any construction mortgage 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.