A reverse mortgage purchase enables seniors age 62 or older in state to purchase a new home with HECM loan proceeds. The primary benefit to the senior is that the transaction only involves one set of settlement costs vs. buying a home and getting a reverse mortgage afterwards, which would have two complete sets of settlement costs. Created by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Qualified seniors must abide by all HECM requirements, each of the basic guidelines apply in combination with a few new guidelines.
What are the fundamentals?
Can purchase existing 1 to 4 unit properties
Home will need to serve as primary residence
Once HECM purchase is done, no additional liens are allowed (Lender in 1st position, HUD in silent 2nd)
Will need to provide financial investment at closing from allowed funding source, see below for details
Must reside in property within Sixty days of closing
Newly built houses will need to have certificate of occupancy
There are some differences between a HECM for purchase and a traditional HECM for seniors in state.
The key distinctions concern the properties types that are permitted, the funds required at closing, the assistance of a real estate professional in the mortgage loan process, the recommendation of a skilled professional home inspection, and specific settlement costs.
Check out these other pages of information:
Casa Mobile Home Park, West Sacramento Trailer Park, West Sacramento, Broderick, Westwind Estates
Eligible Properties
Identical to regular HECM mortgages
Ineligible Properties
Cooperative units
Manufactured homes constructed prior to 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses
What is the financial investment requirement?
At closing, HECM borrowers will have to provide a financial investment which is to be applied to satisfy the difference between the HECM principal limit and the purchase price for the property, plus any HECM loan related fees that aren’t financed or offset by other allowable FHA funding sources. Basically, the funds from the reverse mortgage as well as any cash from the sale of the old property (or from the homeowner’s personal savings) needs to be sufficient to buy the new property outright.
The difference between principal limit and sales price for the property in state includes any HECM mortgage loan related costs that aren’t financed or offset by other allowable funding source. Consumers could provide a larger investment amount so that they can maintain a portion of HECM funds for future draws.
What are allowed investment sources?
Consumer may only use their own money or funds obtained from the sale of properties and assets.
Withdrawals from homeowner’s savings or retirement account will be satisfactory.
Mortgage companies will be required to validate the source of all money before closing. A verification of deposit, together with the most up-to-date bank statement, may be used to validate savings and checking accounts. If there is a significant increase in an account, or the account was opened fairly recently, the mortgage lender must get a legitimate justification of the source of those funds. This type of documents needs to be made available in the FHA case binder. Failure to provide the mandatory paperwork may lead to a notice of denial and delay of endorsement.
What funding resources are ineligible?
Gifts
Loan discount points
Interest rate buy downs
Settlement cost assistance
Builders incentives
Home owner contributions or homeowner financing
Charge card advances
Secured or non-secured loans from another asset (car, home equity)
Consumers may not get a bridge loan (also called “gap financing”) or take part in other interim financing techniques to satisfy the financial investment obligation or payment of settlement costs required to close the purchase transaction. This limitation includes subordinate liens, personal loan, cash withdrawals from credit cards, seller financing and also any other lending commitments that can not be satisfied at closing.
What is the Role of the Real Estate Agent?
Seniors in state should consider a written agreement – you need to include contingencies for the sale of the senior’s previous home, the property inspection, etc.
Deciding on a Home for Purchase & Getting an Inspection
All seniors are strongly encouraged by HUD to have a home inspection from a licensed skilled professional home inspector (This is recommended but not required)
Examines the soundness: structure, construction, and mechanical systems
Describes items that ought to be fixed or replaced before the scheduled closing date
Estimates the remaining useful life span of the key systems, equipment, structure, and finishes
Buyers could be at the inspection to ask questions about the condition and maintenance
Required Repairs
Health and safety or structural integrity issues
Need to be completed prior to closing by seller
Include in purchase agreement
Buyer cannot put any cash into repairs before they own the home
Writing an offer
Must state offer contingent on acceptable inspection conducted by qualified home inspector
Borrower may want attorney to review – raises expenses but can be worth it
Client can cancel transaction at any time before closing however this could affect earnest money deposit
Settlement Costs for a
Standard Home Equity Conversion Mortgage settlement costs plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you ought to know about jumbo reverse mortgage:
There is 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. As a result, all initial advances can be disbursed at the time 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 incentives aren’t applicable to reverse mortgages.
Existing HECM borrowers who engage in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and mortgage lenders will have to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which are authorized 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.
Mortgage companies need to ensure that the property, 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 CO or its equivalent has been issued;
3) Any construction mortgage loan financing for the property, 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 liens against the property exist.