A reverse mortgage purchase allows seniors age 62 or older in state to buy a new property with HECM loan proceeds. The primary benefit to the senior is the purchase only requires one set of closing costs vs. purchasing a property 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, the program became live on January 1, 2009. Qualified seniors must abide by all HECM requirements, all of the basic rules apply in combination with some new rules and regulations.

What are the basics?

Can buy existing 1 to 4 unit properties
House will need to serve as primary residence
Once HECM purchase is completed, no additional liens are acceptable (Lender in 1st position, HUD in silent 2nd)
Will have to supply monetary investment at closing from permitted funding source, see below for requirements
Will need to live in house within 60 days of close of escrow
Newly constructed properties must have certificate of occupancy

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

The major distinctions concern the properties types which are allowed, the money needed at close of escrow, the involvement of a real estate broker in the loan process, the recommendations of a skilled professional property inspection, and specific settlement costs.

Check out these other pages of information:

West Sacramento Trailer Park, Broderick, Peethill, Casa Mobile Home Park, Highland Park

Eligible Properties

Same as regular HECM loans

Ineligible Properties
Cooperative units
Manufactured housing built before 1976 and without permanent foundation
Bed and breakfast properties, boarding houses

What is the monetary investment requirement?

At close of escrow, HECM borrowers will have to produce a monetary investment which is applied to satisfy the difference between the HECM principal limit and the purchase price for the house, as well as any HECM loan associated expenses which 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 borrower’s savings account) needs to be enough to buy the new house outright.

The difference between principal limit and sales price for the house in state includes any HECM loan related fees which aren’t financed or offset by other permitted funding source. Homeowners may provide a larger investment amount in order to retain a percentage of HECM proceeds for future draws.

What are permitted financing sources?

Borrower can only make use of their personal capital or money obtained from selling properties and assets.
Withdrawals from borrower’s savings or retirement account will be satisfactory.

Loan companies will be required to confirm the origin of all the money in advance of close of escrow. A verification of deposit, together with the most current bank statement, could be used to confirm savings and checking accounts. If there is a substantial increase in an account, or the account was opened recently, the lending company must obtain a credible clarification of the source of those funds. This kind of documents needs to be supplied in the FHA case binder. Failing to produce the specified paperwork may result in a notice of denial and delay of endorsement.

What funding resources are ineligible?

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

Homeowners will not obtain a bridge loan (also called “gap financing”) or take part in other interim financing strategies to meet the monetary investment obligation or payment of settlement costs necessary to complete the purchase transaction. This limitation is comprised of subordinate liens, unsecured loans, cash withdrawals from charge cards, seller financing and also any other lending commitments that can not be satisfied at closing.

What is the Job of the Real Estate Broker?

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

Deciding on a Property for Purchase & Getting an Home inspection

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

Evaluates the soundness: structure, construction, and mechanical systems
Specifies items which ought to be fixed or replaced prior to the scheduled close of escrow date
Estimates the remaining useful life span of the key 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
Needs to be completed prior to closing by seller
Include in purchase agreement
Buyer cannot put any cash into repairs before they own the property

Writing an offer

Must state offer contingent on satisfactory inspection done by qualified inspector
Borrower may want attorney to review – raises costs but will be worth it
Client may cancel transaction at any time prior to closing however, this may affect earnest money deposit

Closing Costs for a

Standard Home Equity Conversion Mortgage settlement costs plus:

Recording fees
Transfer taxes
Varies from state-to-state

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

There is no three day right of rescission unlike traditional HECM. The three-day right of rescission period isn’t applicable to HECM for Purchase transactions. As a result, all initial advances can be disbursed on the day of closing by the escrow officer. However, FHA encourages lenders 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 get involved in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and loan providers will have to enter the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which have been authorised to provide reverse mortgage counseling, must counsel individuals who anticipate using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Loan companies will need to ensure that the house, when utilized as collateral for the HECM, meets the following property requirements:

1) It is the borrower’s primary residence;

2) Construction is completed and a CO or something similar has been issued;

3) Any construction loan financing for the house, 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 other liens against the house exist.