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 key benefit to the senior is that the purchase only involves one set of settlement costs vs. buying a house and obtaining a reverse mortgage afterwards, which would incur two complete sets of settlement costs. Created by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Eligible seniors must comply with all HECM standards, all of the basic guidelines apply together with a few new regulations and rules.

What are the fundamentals?

Can buy existing 1 to 4 unit property
House will need to serve as primary residence
Once HECM purchase is completed, no additional liens are allowed (Financial institution in 1st position, HUD in silent 2nd)
Will have to supply financial investment at closing from allowed funding source, see below for specifics
Will need to live in home within Sixty days of close of escrow
Newly constructed houses need to have certificate of occupancy

There are a few differences between a HECM for purchase and a standard HECM for seniors in state.

The key distinctions concern the properties types which are permitted, the funds needed at close of escrow, the involvement of a realtor in the mortgage process, the recommendations of a skilled professional house inspection, and specific settlement costs.

Check out these other pages of information:

North Sacramento, Swanston, Sacramento, Elvas, Hagginwood

Eligible Properties

Same as regular HECM mortgages

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 close of escrow, HECM borrowers must supply a financial investment which is applied to satisfy the difference between the HECM principal limit and the purchase price for the home, in addition to any HECM loan related fees that are not financed or offset by other permitted FHA funding sources. Basically, the funds from the reverse mortgage as well as any funds from the sale of the old home (or from the homeowner’s savings) has to be enough to purchase the new home outright.

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

What are allowed funding resources?

Homeowner may make use of their own funds or funds obtained from selling property and assets.
Withdrawals from homeowner’s savings or pension account are generally satisfactory.

Financial institutions will be required to validate the original source of all money before close of escrow. A verification of deposit, together with the most recent bank statement, may be used to validate savings and checking accounts. Whether there is a considerable increase in an account, or the account was opened recently, the financial institution will need to obtain a credible explanation of the source of those funds. This kind of paperwork has to be supplied in the FHA case binder. Failing to produce the required paperwork may result in a notice of denial and postponement of endorsement.

What funding resources are ineligible?

Gifts
Loan discount points
Rate buy downs
Settlement cost assistance
Building contractors incentives
Seller contributions or seller financing
Charge card advances
Secured or non-secured loans from another asset (car, home equity)

Consumers may not obtain a bridge loan (often known as “gap financing”) or engage in other interim financing methods to fulfill the financial investment requirement or payment of settlement costs needed to close the purchase transaction. This limitation encompasses subordinate liens, personal loans, cash withdrawals from credit cards, seller financing along with other lending obligations that can’t be satisfied at closing.

What is the Function of the Real Estate Agent?

Seniors in state should consider a written contract – make sure you include contingencies for the sale of the senior’s previous house, the property inspection, etc.

Selecting a Home for Purchase & Getting an Inspection

All seniors are strongly encouraged by HUD to have a home inspection from a licensed qualified home inspector (This is advised however it is not required)

Evaluates the physical condition: structure, construction, and mechanical systems
Describes items which ought to be repaired or replaced before the scheduled close of escrow date
Estimates the remaining practical life span of the key systems, equipment, structure, and finishes
Buyers should be at the inspection to ask questions on the condition and maintenance

Required Repairs

Health and safety or architectural integrity issues
Have 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 contingent on acceptable inspection done by qualified home inspector
Borrower might want attorney to review – will increase expenses but can be worth it
Client can cancel transaction any time prior to closing but this could affect earnest money deposit

Closing Costs for a

Standard Reverse Home Loan settlement fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you ought to know about Home Equity Conversion Mortgage:

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. As a result, all initial advances could be paid on the day of closing by the settlement agent. However, FHA encourages loan companies to seek their counsel’s opinion to assure compliance with Federal or state laws.
Seller concessions aren’t applicable to reverse mortgages.
Existing HECM borrowers who get involved in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and lenders must enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies that have been authorised to provide reverse mortgage counseling, must counsel those who anticipate utilizing the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Financial institutions need to ensure that the home, when utilized as collateral for the HECM, meets the following property requirements:

1) It is the borrower’s primary residence;

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

3) Any construction mortgage financing for the home, 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 home exist.