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 primary benefit to the senior is the purchase only requires one set of closing costs vs. purchasing a home and obtaining a reverse mortgage thereafter, which would have two complete sets of closing costs. Developed by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Qualified seniors must abide by all HECM standards, all of the basic rules apply in combination with a few new rules and regulations.
What are the fundamentals?
 Can buy existing 1 to 4 unit properties
 Property will need to serve as primary residence
 Once HECM purchase is finished, no further liens are allowed (Loan provider in 1st position, HUD in silent 2nd)
 Will have to supply financial investment at closing from permitted funding source, see below for specifics
 Will have to live in property within 60 days of close of escrow
 Newly built properties have to have certificate of occupancy
There are several variations between a HECM for purchase and a conventional HECM for seniors in state.
The major distinctions concern the properties types that are eligible, the funds required at close of escrow, the assistance of a real estate professional in the home loan process, the recommendation of a qualified home inspection, and certain settlement costs.
Check out these other pages of information:
Del Paso, Del Paso Heights, Hagginwood, Ben Ali, Gardenland
Permitted Properties
Identical to traditional HECM loans
Ineligible Properties
 Cooperative units
 Manufactured housing constructed before 1976 and lacking permanent foundation
 Bed and breakfast properties, boarding houses
What’s the financial investment requirement?
At close of escrow, HECM borrowers need to produce a financial investment which is to be applied to fulfill the difference between the HECM principal limit and the purchase price for the property, plus any HECM loan associated expenses that are not financed or offset by other allowed FHA funding sources. This means that, the proceeds from the reverse mortgage as well as any funds from the sale of the old property (or from the homeowner’s savings) must be sufficient to buy the new property outright.
The primary difference between principal limit and sales price for the property in state also includes any HECM home loan related fees that are not financed or offset by other permitted funding source. Consumers can provide a larger down payment amount in order to retain a portion of HECM proceeds for future draws.
What are permitted funding options?
 Homeowner may only make use of their personal money or capital obtained from the sale of assets.
 Withdrawals from homeowner’s personal savings or pension account are acceptable.
Mortgage lenders are going to be required to verify the original source of all the funds prior to close of escrow. A verification of deposit, together with the most up-to-date bank statement, could be used to verify savings and checking accounts. When there is a large increase in an account, or the account was opened up recently, the mortgage lender will have to get a legitimate clarification of the source of those funds. This type of paperwork must be presented in the FHA case binder. Failing to provide the mandatory documentation could lead to a notice of denial and delay of endorsement.
What funding resources are ineligible?
 Gifts
 Loan discount points
 Interest rate buy downs
 Closing cost assistance
 Builders incentives
 Seller contributions or property owner financing
 Credit card advances
 Secured or non-secured loans from another asset (car, home equity)
Consumers will not get a bridge loan (also called “gap financing”) or take part in other interim financing techniques to satisfy the financial investment requirement or payment of settlement costs required to close the purchase transaction. This restriction is comprised of subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending obligations that can’t be satisfied at closing.
What’s the Role of the Real Estate Agent?
Seniors in state must 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 Inspection
All seniors are strongly encouraged by HUD to get a home inspection from a licensed qualified professional home inspector (It is advised but not required)
 Assesses the soundness: structure, construction, and mechanical systems
 Identifies issues that should be repaired or replaced prior to 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 can’t put any cash into repairs before they own the home
Writing an offer
 Must state offer contingent on satisfactory inspection performed by qualified inspector
 Borrower may want attorney to review – increases costs but will be worth it
 Client can cancel transaction at any time prior to closing however this could affect earnest money deposit
Closing Costs for a
Standard HECM settlement fees plus:
 Recording fees
 Transfer taxes
 Varies from state-to-state
Other things you need to understand about local reverse mortgage:
 There is 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. Therefore, all initial advances can be disbursed on the day of closing by the escrow officer. However, FHA encourages lenders to get their counsel’s opinion to assure compliance with Federal or state laws.
 Seller incentives 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 loan companies need to enter 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 people who anticipate utilizing the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
 Mortgage lenders will need to be sure the property, when utilized as collateral for the HECM, satisfies the following property requirements:
1) It is the borrower’s primary residence;
2) Construction is complete and a certificate of occupancy or its equivalent has been issued;
3) Any construction home loan financing for the property, 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 property exist.