A reverse mortgage purchase enables seniors age 62 or older in state to buy a new house with HECM loan proceeds. The principal benefit to the senior is the purchase only involves one set of settlement costs vs. buying a house and obtaining a reverse mortgage afterwards, which will incur 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 adhere to all HECM standards, all the standard rules apply along with a few new rules and regulations.
What are the fundamentals?
Can buy existing 1 to 4 unit properties
House must serve as principal residence
Once HECM purchase is completed, no additional liens are acceptable (Financial institution in 1st position, HUD in silent 2nd)
Will need to provide financial investment at closing from allowed funding source, see below for specifics
Must occupy home within Sixty days of closing
Newly constructed homes must have certificate of occupancy
There are some variations between a HECM for purchase and a traditional HECM for seniors in state.
The main distinctions concern the properties types which are permitted, the cash needed at closing, the assistance of a real estate agent in the mortgage process, the recommendations of a qualified house inspection, and certain closing costs.
Check out these other pages of information:
Gardenland, Swanston, Elvas, Hagginwood, Ben Ali
Permitted Properties
Identical to conventional HECM mortgages
Ineligible Properties
Cooperative units
Manufactured homes built before 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses
What is the monetary investment requirement?
At closing, HECM borrowers need to supply a financial investment which will be applied to satisfy the difference between the HECM principal limit and the sales price for the home, along with any HECM loan connected fees which aren’t financed or offset by other allowed FHA funding sources. Basically, the proceeds from the reverse mortgage and any money from the sale of the old home (or from the consumer’s savings account) needs to be enough to purchase the new home outright.
The primary difference between principal limit and sales price for the home in state includes any HECM mortgage related costs which aren’t financed or offset by other allowable funding source. Consumers may provide a larger investment amount so that they can retain a portion of HECM proceeds for future draws.
What are allowed investment options?
Borrower can only make use of their own money or funds obtained from selling financial assets.
Withdrawals from consumer’s personal savings or pension account are usually acceptable.
Loan companies will be required to verify the origin of all money prior to closing. A verification of deposit, along with the most current bank statement, may be used to verify savings and checking accounts. When there is a significant increase in an account, or the account was opened up recently, the mortgage lender will have to obtain a credible clarification of the source of those funds. This kind of documents needs to be provided in the FHA case binder. Failing to produce the required documents may 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 property owner financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)
Consumers will not obtain a bridge loan (generally known as “gap financing”) or engage in other interim financing techniques to meet the financial investment obligation or payment of closing costs required to finalize the purchase transaction. This limitation is comprised of subordinate liens, personal loan, cash withdrawals from credit cards, seller financing and any other lending commitments that can’t be satisfied at closing.
What is the Function of the Realtor?
Seniors in state should consider a written arrangement – it is best to include contingencies for the sale of the senior’s previous house, the house inspection, etc.
Deciding on a House for Purchase & Getting an Inspection
All seniors are strongly encouraged by HUD to have a home inspection from a licensed certified home inspector (It’s suggested however it is not required)
Assesses the soundness: structure, construction, and mechanical systems
Describes issues that need to be fixed or replaced before the scheduled closing date
Estimates the remaining practical life of the major systems, equipment, structure, and finishes
Buyers should 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 not put any cash into repairs before they own the house
Writing an offer
Must state offer conditional on acceptable inspection done by qualified inspector
Borrower may wish attorney to review – will increase expenses but can be worth it
Client may cancel transaction anytime prior to closing however this could affect earnest money deposit
Closing Costs for a
Standard Reverse Loan closing costs plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you ought to know about local reverse mortgage specialist:
There’s 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. Therefore, all initial advances could be disbursed at the time of closing by the settlement agent. However, FHA encourages financial institutions to get their counsel’s opinion to ensure compliance with Federal or state laws.
Seller concessions are not applicable to reverse mortgages.
Existing HECM borrowers who participate in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and lenders need to enter the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies that have been accredited 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 companies will have to ensure that the home, when utilized as collateral for the HECM, meets the following property requirements:
1) It is the borrower’s principal residence;
2) Construction is finished and a C of O 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, at the time of closing, no other liens against the home exist.