A reverse mortgage purchase enables 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 settlement costs vs. buying a home and obtaining a reverse mortgage after, which will have two complete sets of settlement costs. Created 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 of the standard regulations apply in combination with some new rules and regulations.
What are the basics?
Can buy existing 1 to 4 unit properties
Property will need to serve as principal residence
Once HECM purchase is done, no further liens are permitted (Loan provider in 1st position, HUD in silent 2nd)
Will need to supply monetary investment at closing from allowed funding source, see below for information and facts
Will need to reside in house within Sixty days of close of escrow
Newly constructed houses need to have certificate of occupancy
There are several variations between a HECM for purchase and a conventional HECM for seniors in state.
The key differences concern the properties types that are qualified, the cash required at close of escrow, the involvement of a real estate broker in the home loan process, the recommendation of a skilled professional home inspection, and specific settlement fees.
Check out these other pages of information:
Highland Park, Fruitridge Pocket, Fruitridge Manor, Sacramento, Elvas
Permitted Properties
Same as traditional HECM mortgages
Ineligible Properties
Cooperative units
Manufactured housing constructed prior to 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses
What’s the money investment requirement?
At close of escrow, HECM borrowers need to produce a monetary investment which will be applied to satisfy the difference between the HECM principal limit and the sales price for the house, plus any HECM loan associated fees that aren’t financed or offset by other allowable FHA funding sources. Basically, the proceeds from the reverse mortgage and any money from the sale of the old house (or from the consumer’s savings account) will have to be sufficient to buy the new house outright.
The difference between principal limit and sales price for the house in state includes any HECM home loan related costs that aren’t financed or offset by other allowable funding source. Borrowers may provide a larger down payment amount as a way to keep a percentage of HECM proceeds for future draws.
What are allowed investment options?
Borrower may only make use of their own funds or cash obtained from selling financial assets.
Withdrawals from consumer’s personal savings or retirement account are usually satisfactory.
Loan providers are going to be required to verify the source of all the money in advance of close of escrow. A verification of deposit, in addition to the latest bank statement, may be used to verify savings and checking accounts. If there is a significant increase in an account, or the account was opened fairly recently, the financial institution must get a legitimate justification of the source of those funds. This sort of documentation will have to be provided in the FHA case binder. Failing to supply the specified paperwork may lead to a notice of rejection and postponement of endorsement.
What funding resources are ineligible?
Gifts
Loan discount points
Interest rate buy downs
Closing cost assistance
Builders incentives
Seller contributions or homeowner financing
Charge card advances
Secured or non-secured loans from another asset (car, home equity)
Borrowers may not get a bridge loan (also referred to as “gap financing”) or take part in other interim financing strategies to satisfy the monetary investment obligation or payment of settlement fees required to complete the purchase transaction. This limitation may include subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitments that can not be satisfied at closing.
What’s the Job of the Realtor?
Seniors in state should consider a written arrangement – it is best to include contingencies for the sale of the senior’s previous home, the house inspection, etc.
Selecting a Property for Purchase & Getting an Home inspection
All seniors are strongly encouraged by HUD to get a home inspection from a licensed skilled professional home inspector (It is advised but is not mandatory)
Evaluates the physical condition: structure, construction, and mechanical systems
Describes items that need to be fixed or replaced before the scheduled close of escrow date
Estimates the remaining useful life of the key systems, equipment, structure, and finishes
Buyers could be at the inspection to ask questions on the condition and maintenance
Required Repairs
Health and safety or architectural integrity issues
Needs to be finished 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 conditional on satisfactory inspection conducted by qualified home inspector
Borrower may want attorney to review – raises fees but will be worth it
Client may cancel transaction any time prior to closing but this may affect earnest money deposit
Settlement Fees for a
Standard Reverse Mortgage closing costs plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you need to know about reverse mortgage home loan in California:
There’s no three day right of rescission unlike traditional HECM. The three-day right of rescission period is not applicable to HECM for Purchase transactions. Therefore, all initial advances can be paid at the time of closing by the escrow company. However, FHA encourages loan companies to get their counsel’s opinion to ensure compliance with Federal or state laws.
Seller incentives are not 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 loan companies 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 those that anticipate using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Loan providers will have to ensure the house, when utilized as collateral for the HECM, satisfies the following property requirements:
1) It’s the borrower’s principal residence;
2) Construction is complete and a occupancy certification or its equivalent was issued;
3) Any construction home 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, during closing, no liens against the house exist.