A reverse mortgage purchase makes it possible for seniors age 62 or older in state to purchase a new home with HECM loan proceeds. The key benefit to the senior is the fact that purchase only involves one set of settlement costs vs. buying a home and getting a reverse mortgage afterwards, which will have two complete sets of settlement costs. Created by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Eligible seniors must conform to all HECM standards, each of the basic guidelines apply in addition to a few new regulations and rules.

A few of the fundamentals?

Can buy existing 1 to 4 unit property
House 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)
Must supply financial investment at closing from permitted funding source, see below for information and facts
Will need to live in property within Sixty days of close of escrow
Newly constructed homes require certificate of occupancy

There are some variations 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 close of escrow, the assistance of a real estate professional in the mortgage loan process, the recommendation of a professional home inspection, and certain closing costs.

Check out these other pages of information:

Pollock, Parkway-South Sacramento, Cordova, Fruitridge Manor, Fruitridge Pocket

Permitted Properties

Identical to regular HECM mortgages

Ineligible Properties
Cooperative units
Manufactured housing constructed before 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses

What is the money investment requirement?

At close of escrow, HECM borrowers will have to provide a financial investment which is to be applied to satisfy the difference between the HECM principal limit and the sales price for the property, along with any HECM loan connected fees which are not financed or offset by other allowed FHA funding sources. Basically, the funds from the reverse mortgage as well as any money from the sale of the old property (or from the borrower’s personal savings) has to be enough to buy the new property outright.

A real difference between principal limit and sales price for the property in state also includes any HECM mortgage loan related fees which are not financed or offset by other allowable funding source. Borrowers could provide a larger down payment amount so that they can retain a percentage of HECM funds for future draws.

What are permitted financing sources?

Consumer can only make use of their personal money or cash obtained from the sale of assets.
Withdrawals from borrower’s personal savings or retirement account are usually satisfactory.

Financial institutions will be required to confirm the origin of all funds prior to close of escrow. A verification of deposit, together with the latest bank statement, may be used to confirm savings and checking accounts. When there’s a considerable increase in an account, or the account was opened recently, the lending company will need to get a legitimate clarification of the source of those funds. Such documentation has to be made available in the FHA case binder. Failing to supply the necessary paperwork could lead to a notice of rejection and postponement of endorsement.

Which funding resources are ineligible?

Gifts
Loan discount points
Mortgage rate buy downs
Closing cost assistance
Building contractors incentives
Seller contributions or property owner financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)

Borrowers may not get a bridge loan (also known as “gap financing”) or participate in other temporary financing methods to fulfill the financial investment obligation or payment of closing costs required to complete the purchase transaction. This limitation includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing as well as any other lending obligations that cannot be satisfied at closing.

What is the Function 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 home inspection, etc.

Selecting a Property for Purchase & Getting an Inspection

All seniors are strongly encouraged by HUD to get a home inspection from a licensed skilled professional home inspector (It is suggested but not required)

Assesses the physical condition: 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 of the main systems, equipment, structure, and finishes
Buyers can be at the inspection to ask questions about the condition and maintenance

Required Repairs

Health and safety or structural integrity issues
Needs to be finished prior to closing by seller
Include in purchase agreement
Buyer can not put any money 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 – will increase costs but can be worth it
Client can cancel transaction any time before closing but this could affect earnest money deposit

Closing Costs for a

Standard HECM costs plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you need to know about local reverse mortgage experts:

There is no three day right of rescission contrary to traditional HECM. The three-day right of rescission period is not applicable to HECM for Purchase transactions. As a result, all initial advances could be paid on the day 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 loan providers will have to enter in 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.
Financial institutions need to ensure that 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 something similar has been issued;

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