A reverse mortgage purchase allows for seniors age 62 or older in state to purchase a new house with HECM loan proceeds. The main benefit to the senior is the purchase only requires one set of settlement costs vs. purchasing a house and obtaining a reverse mortgage afterwards, which would 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. Qualified seniors must comply with all HECM requirements, all of the basic regulations apply in combination with some new guidelines.

A few of the fundamentals?

Can purchase existing 1 to 4 unit properties
Home will need to serve as primary residence
Once HECM purchase is completed, no additional liens are permitted (Loan provider in 1st position, HUD in silent 2nd)
Must supply monetary investment at closing from allowed funding source, see below for details
Will need to reside in home within Sixty days of closing
Newly constructed homes will need to have certificate of occupancy

There are several differences between a HECM for purchase and a standard HECM for seniors in state.

The major distinctions concern the properties types that are permitted, the money needed at closing, the involvement of a real estate broker in the mortgage process, the recommendation of a certified house inspection, and specific settlement fees.

Check out these other pages of information:

Brighton, Perkins, Polk, Manlove, Arden Town

Permitted Properties

Identical to regular HECM loans

Ineligible Properties
Cooperative units
Manufactured homes built prior to 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses

What is the monetary investment requirement?

At closing, HECM borrowers need to provide a monetary investment that will be applied to satisfy the difference between the HECM principal limit and the purchase price for the home, plus any HECM loan connected expenses which aren’t financed or offset by other allowable FHA funding sources. This means that, the proceeds from the reverse mortgage and any money from the sale of the old home (or from the borrower’s savings account) has to be enough to purchase the new home outright.

The difference between principal limit and sales price for the home in state includes any HECM mortgage related fees which aren’t financed or offset by other allowable funding source. Homeowners can provide a larger down payment amount in order to maintain a percentage of HECM proceeds for future draws.

What are allowed financing options?

Homeowner may make use of their personal money or capital obtained from the sale of property and assets.
Withdrawals from borrower’s personal savings or retirement account are usually satisfactory.

Loan providers are going to be required to validate the source of all the money prior to closing. A verification of deposit, along with the most recent bank statement, may be used to validate savings and checking accounts. When there’s a considerable increase in an account, or the account was opened up recently, the financial institution will have to obtain a valid justification of the source of those funds. This sort of paperwork has to be provided in the FHA case binder. Failing to supply the mandatory documents could lead to a notice of denial and postponement of endorsement.

What funding resources are ineligible?

Gifts
Loan discount points
Rate buy downs
Settlement cost assistance
Building contractors incentives
Home owner contributions or seller financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)

Homeowners may not obtain a bridge loan (also known as “gap financing”) or take part in other interim financing methods to meet the monetary investment obligation or payment of settlement fees necessary to finalize the purchase transaction. This limitation includes subordinate liens, unsecured loans, cash withdrawals from credit cards, seller financing and also any other lending obligations that cannot be satisfied at closing.

What is the Function of the Realtor?

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

Selecting a Home for Purchase & Getting an Inspection

All seniors are strongly encouraged by HUD to have a home inspection from a licensed skilled professional home inspector (It is recommended however it is not required)

Examines the physical condition: structure, construction, and mechanical systems
Identifies items which should be fixed or replaced prior to the scheduled closing date
Estimates the remaining practical life of the main systems, equipment, structure, and finishes
Buyers can be at the inspection to ask questions regarding the condition and maintenance

Required Repairs

Health and safety or structural integrity issues
Have to be finished prior to closing by seller
Include in purchase agreement
Buyer cannot put any cash into repairs before they own the house

Writing an offer

Must state offer contingent on acceptable inspection performed by qualified home inspector
Borrower might 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

Settlement Fees for a

Standard Home Equity Conversion Mortgage fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you need to know about reverse mortgage experts:

There’s 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 at the time of closing by the escrow company. 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 engage in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and financial institutions need to enter in 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 individuals who anticipate utilizing the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Loan providers will have to be sure the home, when used as collateral for the HECM, satisfies the following property requirements:

1) It is the borrower’s primary residence;

2) Construction is finished and a CO or its equivalent has been issued;

3) Any construction mortgage financing for the home, 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 home exist.