A reverse mortgage purchase makes it possible for seniors age 62 or older in state to buy a new home with HECM loan proceeds. The principal benefit to the senior is the purchase only involves one set of closing costs vs. purchasing a home and getting a reverse mortgage after, which would 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 comply with all HECM standards, all the basic regulations apply along with some new rules and regulations.

What are the fundamentals?

Can buy existing 1 to 4 unit properties
Property must serve as primary residence
Once HECM purchase is done, no further liens are acceptable (Loan provider in 1st position, HUD in silent 2nd)
Will need to provide monetary investment at closing from permitted funding source, see below for details
Must occupy home within Sixty days of closing
Newly built houses needs to have certificate of occupancy

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

The key distinctions concern the properties types that are allowed, the funds required at closing, the assistance of a real estate broker in the mortgage loan process, the recommendation of a certified home inspection, and certain closing costs.

Check out these other pages of information:

Trails End Mobile Home Park, Riverside Mobile Home Park, Walnut Trailer Villa, Capri Mobile Home Park, Garden Acres Mobile Home Park

Eligible Properties

Same as regular HECM loans

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

What’s the money investment requirement?

At closing, HECM borrowers will need to supply a monetary investment that is to be applied to satisfy the difference between the HECM principal limit and the sales price for the home, in addition to any HECM loan related fees that are not financed or offset by other allowable FHA funding sources. This means that, the funds from the reverse mortgage and any funds from the sale of the old home (or from the borrower’s savings account) needs to be enough to purchase the new home outright.

The primary difference between principal limit and sales price for the home in state includes any HECM mortgage loan related costs that are not financed or offset by other permitted funding source. Consumers can provide a larger down payment amount so that they can retain a portion of HECM funds for future draws.

What are permitted funding sources?

Consumer can only use their personal funds or capital obtained from selling assets.
Withdrawals from borrower’s personal savings or retirement account will be satisfactory.

Lenders are going to be required to validate the source of all money before closing. A verification of deposit, in addition to the latest bank statement, could be used to validate savings and checking accounts. Whether there is a substantial increase in an account, or the account was opened up recently, the lender will need to obtain a credible clarification of the source of those funds. Such documents needs to be provided in the FHA case binder. Failure to provide the specified documents may lead to a notice of rejection and delay of endorsement.

What funding sources are ineligible?

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

Consumers will not obtain a bridge loan (also referred to as “gap financing”) or engage in other interim financing methods to meet the monetary investment requirement or payment of closing costs required to close the purchase transaction. This restriction is comprised of subordinate liens, unsecured loans, cash withdrawals from charge cards, seller financing and any other lending obligations that can’t be satisfied at closing.

What’s the Job of the Real Estate Agent?

Seniors in state must consider a written agreement – you should include contingencies for the sale of the senior’s previous home, the property inspection, etc.

Choosing a Home for Purchase & Obtaining an Home inspection

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

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

Required Repairs

Health and safety or structural integrity issues
Need 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 conditional on sufficient inspection done by qualified inspector
Borrower might want attorney to review – increases expenses but will be worth it
Client can cancel transaction at any time before closing however this could affect earnest money deposit

Settlement Costs for a

Standard Reverse Mortgage costs plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should know about reverse mortgage specialist in California:

There’s 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. Therefore, all initial advances may be disbursed on the day of closing by the settlement agent. However, FHA encourages loan companies to seek their counsel’s opinion to ensure compliance with Federal or state laws.
Seller incentives aren’t applicable to reverse mortgages.
Existing HECM borrowers who participate in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and financial institutions will need to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which are approved to provide reverse mortgage counseling, must counsel individuals who anticipate making use of the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Lenders are required to ensure that the home, when utilized as collateral for the HECM, satisfies the following property requirements:

1) It’s the borrower’s primary residence;

2) Construction is complete and a certificate of occupancy or its equivalent has been 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.