A reverse mortgage purchase allows for seniors age 62 or older in state to buy a new house with HECM loan proceeds. The key benefit to the senior is the fact that transaction only requires one set of closing costs vs. purchasing a house and getting a reverse mortgage afterwards, which will have two complete sets of closing costs. Developed 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 regulations apply together with a few new rules and regulations.
A few of the basics?
Can buy existing 1 to 4 unit property
Home must serve as primary residence
Once HECM purchase is completed, no additional liens are allowed (Lender in 1st position, HUD in silent 2nd)
Will have to provide financial investment at closing from permitted funding source, see below for information and facts
Will have to reside in house within 60 days of close of escrow
Newly constructed properties must have certificate of occupancy
There are a few differences between a HECM for purchase and a conventional HECM for seniors in state.
The key differences concern the properties types which are qualified, the money required at close of escrow, the assistance of a real estate broker in the mortgage process, the recommendations of a professional house inspection, and certain settlement fees.
Check out these other pages of information:
Fruitridge Pocket, Parkway-South Sacramento, Polk, Cordova, Brighton
Eligible Properties
Identical to regular HECM mortgages
Ineligible Properties
Cooperative units
Manufactured homes built prior to 1976 and without permanent foundation
Bed and breakfast properties, boarding houses
What is the financial investment requirement?
At close of escrow, HECM borrowers will need to supply a financial investment that will be applied to fulfill the difference between the HECM principal limit and the purchase price for the house, as well as any HECM loan related expenses that aren’t financed or offset by other allowed FHA funding sources. Basically, the funds from the reverse mortgage and any money from the sale of the old house (or from the homeowner’s savings) must be sufficient to purchase the new house outright.
The difference between principal limit and sales price for the house in state includes any HECM mortgage related costs that aren’t financed or offset by other permitted funding source. Borrowers could provide a larger down payment amount to be able to keep a percentage of HECM funds for future draws.
What are permitted funding sources?
Borrower may only make use of their own capital or money obtained from selling assets.
Withdrawals from homeowner’s personal savings or retirement account are usually satisfactory.
Financial institutions are going to be required to verify the source of all the funds in advance of close of escrow. A verification of deposit, together with the most up-to-date bank statement, may be used to verify savings and checking accounts. When there’s a large increase in an account, or the account was opened fairly recently, the financial institution will need to obtain a credible explanation of the source of those funds. This type of documents must be supplied in the FHA case binder. Failing to supply the required paperwork may lead to a notice of rejection and delay of endorsement.
Which funding sources are ineligible?
Gifts
Loan discount points
Rate buy downs
Settlement cost assistance
Home builder incentives
Home owner contributions or homeowner financing
Charge card advances
Secured or non-secured loans from another asset (car, home equity)
Borrowers may not obtain a bridge loan (often known as “gap financing”) or take part in other temporary financing methods to fulfill the financial investment requirement or payment of settlement fees required to finalize the purchase transaction. This limitation is comprised of subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any 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 arrangement – you need to include contingencies for the sale of the senior’s previous house, the property inspection, etc.
Selecting a Property for Purchase & Getting an Inspection
All seniors are strongly encouraged by HUD to have a home inspection from a licensed qualified home inspector (It’s suggested but not required)
Assesses the soundness: structure, construction, and mechanical systems
Specifies items which need to be fixed or replaced before 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
Must be finished prior to closing by seller
Include in purchase agreement
Buyer can not put any money into repairs before they own the house
Writing an offer
Must state offer contingent on sufficient inspection conducted by qualified home inspector
Borrower may want attorney to review – increases fees but can be worth it
Client can cancel transaction anytime before closing however, this may affect earnest money deposit
Settlement Costs for a
Standard Reverse Mortgage settlement costs plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you ought to know about FHA reverse mortgage in California:
There is no three day right of rescission unlike traditional HECM. The three-day right of rescission period is not applicable to HECM for Purchase transactions. Therefore, all initial advances could be paid at the time of closing by the settlement agent. However, FHA encourages financial institutions to seek their counsel’s opinion to assure compliance with Federal or state laws.
Seller concessions aren’t applicable to reverse mortgages.
Existing HECM borrowers who participate in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and loan providers will 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.
Financial institutions will need to make sure the house, when used as collateral for the HECM, meets the following property requirements:
1) It is the borrower’s primary residence;
2) Construction is complete and a occupancy certification or something similar was issued;
3) Any construction mortgage 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 liens against the house exist.