A reverse mortgage purchase allows seniors age 62 or older in state to purchase a new property with HECM loan proceeds. The principal benefit to the senior is the purchase only requires one set of closing costs vs. purchasing a property and getting a reverse mortgage afterwards, which would incur two complete sets of closing costs. Developed by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Qualified seniors must comply with all HECM standards, all of the standard guidelines apply in combination with a few new regulations.
What are the basics?
 Can purchase existing 1 to 4 unit properties
 Home must serve as principal residence
 Once HECM purchase is finished, no further liens are permitted (Lender in 1st position, HUD in silent 2nd)
 Will have to supply monetary investment at closing from allowable funding source, see below for specifics
 Must reside in property within Sixty days of closing
 Newly constructed properties require certificate of occupancy
There are some differences between a HECM for purchase and a conventional HECM for seniors in state.
The major differences concern the properties types that are permitted, the cash needed at closing, the involvement of a real estate broker in the mortgage process, the recommendation of a certified property inspection, and specific settlement costs.
Check out these other pages of information:
Mikon, Bryte Mobile Home Park, Westwind Estates, Lovdal, Capri Mobile Home Park
Permitted Properties
Same as traditional HECM loans
Ineligible Properties
 Cooperative units
 Manufactured homes built before 1976 and lacking permanent foundation
 Bed and breakfast properties, boarding houses
What is the money investment requirement?
At closing, HECM borrowers will have to provide a monetary investment which is applied to fulfill the difference between the HECM principal limit and the purchase price for the property, along with any HECM loan associated fees which aren’t financed or offset by other allowable FHA funding sources. In other words, the funds from the reverse mortgage as well as any money from the sale of the old property (or from the consumer’s savings account) must be enough to purchase the new property outright.
The main difference between principal limit and sales price for the property in state includes any HECM mortgage related costs which aren’t financed or offset by other permitted funding source. Consumers can provide a larger down payment amount in order to keep a portion of HECM funds for future draws.
What are allowable investment options?
 Consumer can only make use of their own capital or money obtained from the sale of financial assets.
 Withdrawals from consumer’s personal savings or retirement account are generally acceptable.
Mortgage companies are going to be required to verify the original source of all the money in advance of closing. A verification of deposit, in addition to the most current bank statement, may be used to verify savings and checking accounts. Whether there is a significant increase in an account, or the account was opened fairly recently, the lender will need to obtain a legitimate justification of the source of those funds. Such paperwork must be supplied in the FHA case binder. Failing to supply the required documentation may result in a notice of rejection and postponement of endorsement.
What funding sources are ineligible?
 Gifts
 Loan discount points
 Mortgage 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 known as “gap financing”) or take part in other interim financing techniques to fulfill the monetary investment obligation or payment of settlement costs required to complete the purchase transaction. This limitation encompasses subordinate liens, unsecured loans, cash withdrawals from charge cards, seller financing along with other lending commitments that can not be satisfied at closing.
What is the Function of the Real Estate Agent?
Seniors in state must consider a written contract – make sure you include contingencies for the sale of the senior’s previous property, the house inspection, etc.
Selecting a House for Purchase & Obtaining an Home inspection
All seniors are strongly encouraged by HUD to get a home inspection from a licensed skilled professional home inspector (It’s suggested but not mandatory)
 Assesses the soundness: structure, construction, and mechanical systems
 Describes items that ought to be repaired or replaced prior to the scheduled closing date
 Estimates the remaining practical life of the key systems, equipment, structure, and finishes
 Buyers could be at the inspection to ask questions regarding the condition and maintenance
Required Repairs
 Health and safety or structural integrity issues
 Will 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 property
Writing an offer
 Must state offer conditional on acceptable inspection done by qualified home inspector
 Borrower might wish attorney to review – raises fees but may be worth it
 Client may cancel transaction anytime before closing however this may affect earnest money deposit
Closing Costs for a
Standard HECM closing costs plus:
 Recording fees
 Transfer taxes
 Varies from state-to-state
Other things you should know about reverse mortgage lender:
 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. Consequently, all initial advances could be paid at the time of closing by the escrow company. 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 take part in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and lenders will have to enter in the transaction into FHA Connection as a new HECM.
 HUD-approved housing counseling agencies which have been approved to provide reverse mortgage counseling, must counsel people who anticipate making use of the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
 Mortgage companies will have to make sure the property, when used as collateral for the HECM, meets the following property requirements:
1) It is the borrower’s principal residence;
2) Construction is completed and a certificate of occupancy or similar has been issued;
3) Any construction mortgage 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, at the time of closing, no liens against the property exist.