A reverse mortgage purchase allows for seniors age 62 or older in state to buy a new home with HECM loan proceeds. The main benefit to the senior is that the transaction only involves one set of closing costs vs. buying a home and getting a reverse mortgage thereafter, which will incur two complete sets of closing costs. Developed by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Eligible seniors must adhere to all HECM standards, all the basic regulations apply together with a few new guidelines.
A few of the fundamentals?
Can purchase existing 1 to 4 unit properties
House must serve as principal residence
Once HECM purchase is completed, no further liens are allowed (Lender in 1st position, HUD in silent 2nd)
Will have to supply financial investment at closing from allowed funding source, see below for information and facts
Will need to occupy home within 60 days of close of escrow
Newly built properties must have certificate of occupancy
There are some variations between a HECM for purchase and a conventional HECM for seniors in state.
The key distinctions concern the properties types that are eligible, the cash needed at close of escrow, the involvement of a realtor in the mortgage loan process, the recommendations of a certified home inspection, and certain settlement fees.
Check out these other pages of information:
Peethill, West Sacramento, West Sacramento Trailer Park, Broderick, Westwind Estates
Eligible Properties
Same as traditional HECM loans
Ineligible Properties
Cooperative units
Manufactured housing constructed prior to 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses
What’s the monetary investment requirement?
At close of escrow, HECM borrowers need to produce a financial investment which is applied to satisfy the difference between the HECM principal limit and the purchase price for the home, along with any HECM loan related fees which aren’t financed or offset by other allowed FHA funding sources. Basically, the funds from the reverse mortgage as well as any money from the sale of the old home (or from the consumer’s savings) has to be adequate to purchase the new home outright.
The difference between principal limit and sales price for the home in state also includes any HECM mortgage loan related costs which aren’t financed or offset by other permitted funding source. Borrowers can provide a larger investment amount so that they can maintain a percentage of HECM funds for future draws.
What are allowed funding sources?
Homeowner can only make use of their personal money or capital obtained from the sale of properties and assets.
Withdrawals from consumer’s personal savings or pension account are generally satisfactory.
Mortgage lenders are going to be required to validate the original source of all the money in advance of close of escrow. A verification of deposit, together with the latest 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 up recently, the mortgage lender will have to get a legitimate explanation of the source of those funds. This type of documents has to be provided in the FHA case binder. Failure to provide the required paperwork may result in a notice of rejection and delay of endorsement.
Which funding sources are ineligible?
Gifts
Loan discount points
Mortgage rate buy downs
Closing cost assistance
Builder incentives
Seller contributions or seller financing
Charge card advances
Secured or non-secured loans from another asset (car, home equity)
Borrowers will not get a bridge loan (often known as “gap financing”) or take part in other interim financing methods to fulfill the financial investment obligation or payment of settlement fees necessary to complete the purchase transaction. This restriction encompasses subordinate liens, personal loans, cash withdrawals from charge cards, seller financing and also any other lending commitments that can’t be satisfied at closing.
What’s the Role of the Real Estate Agent?
Seniors in state should consider a written arrangement – make sure you include contingencies for the sale of the senior’s previous home, the property 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 (It’s recommended but is not required)
Assesses the physical condition: structure, construction, and mechanical systems
Determines items that should be fixed or replaced before the scheduled close of escrow date
Estimates the remaining useful 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
Needs to be completed prior to closing by seller
Include in purchase agreement
Buyer can’t 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 may want attorney to review – raises expenses but will be worth it
Client can cancel transaction anytime before closing however, this could affect earnest money deposit
Settlement Fees for a
Standard Reverse Loan settlement costs plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you ought to know about reverse mortgage in California:
There is no 3 day right of rescission contrary to traditional HECM. The 3-day right of rescission period is not applicable to HECM for Purchase transactions. Consequently, all initial advances could be disbursed 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 concessions are not applicable to reverse mortgages.
Existing HECM borrowers who take part in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and mortgage lenders need to enter 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 those who anticipate utilizing the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Mortgage lenders must ensure the home, when used as collateral for the HECM, meets the following property requirements:
1) It’s the borrower’s principal residence;
2) Construction is finished and a CO or its equivalent was issued;
3) Any construction mortgage loan 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.