A reverse mortgage purchase allows for seniors age 62 or older in state to buy a new home with HECM loan proceeds. The primary benefit to the senior is that the purchase only involves one set of closing costs vs. purchasing a home and getting a reverse mortgage thereafter, which will have two complete sets of closing costs. Developed 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, each of the basic rules apply together with some new regulations and rules.

A few of the fundamentals?

Can buy existing 1 to 4 unit properties
Home will need to serve as principal residence
Once HECM purchase is completed, no further liens are allowed (Financial institution in 1st position, HUD in silent 2nd)
Will need to supply monetary investment at closing from allowable funding source, see below for specifics
Will need to occupy house within Sixty days of close of escrow
Newly constructed properties needs to have certificate of occupancy

There are a few differences between a HECM for purchase and a traditional HECM for seniors in state.

The major differences concern the properties types which are qualified, the funds needed at close of escrow, the involvement of a real estate professional in the mortgage process, the recommendations of a skilled professional home inspection, and specific settlement fees.

Check out these other pages of information:

Westwind Estates, Capri Mobile Home Park, El Rancho Mobile Park, Trails End Mobile Home Park, Bryte Mobile Home Park

Eligible Properties

Same as regular HECM mortgages

Ineligible Properties
Cooperative units
Manufactured homes 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 need to supply a monetary investment which is to be applied to satisfy the difference between the HECM principal limit and the sales price for the house, in addition to any HECM loan related fees which aren’t financed or offset by other allowable FHA funding sources. In other words, the proceeds from the reverse mortgage and any money from the sale of the old house (or from the consumer’s savings account) has to be adequate to purchase the new house outright.

The primary difference between principal limit and sales price for the house in state also includes any HECM mortgage related fees which aren’t financed or offset by other allowable funding source. Borrowers can provide a larger investment amount as a way to maintain a portion of HECM proceeds for future draws.

What are allowable financing options?

Homeowner can only make use of their own money or cash obtained from the sale of financial assets.
Withdrawals from consumer’s savings or retirement account are generally satisfactory.

Lenders will be required to verify the original source of all funds before close of escrow. A verification of deposit, along with the most recent bank statement, may be used to verify savings and checking accounts. If there is a substantial increase in an account, or the account was opened up recently, the financial institution will need to obtain a credible clarification of the source of those funds. This sort of documents has to be supplied in the FHA case binder. Failure to produce the necessary documents could lead to a notice of rejection and postponement of endorsement.

What funding resources are ineligible?

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

Borrowers may not obtain a bridge loan (generally known as “gap financing”) or engage in other interim financing methods to meet the monetary investment obligation or payment of settlement fees necessary to finalize the purchase transaction. This restriction encompasses subordinate liens, personal loan, cash withdrawals from charge cards, seller financing along with other lending commitments that cannot be satisfied at closing.

What is the Function of the Real Estate Broker?

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

Selecting a Property for Purchase & Obtaining an Inspection

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

Examines the physical condition: structure, construction, and mechanical systems
Describes issues that need to be fixed or replaced prior to the scheduled close of escrow 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
Needs to be completed 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 contingent on sufficient inspection conducted by qualified inspector
Borrower might wish attorney to review – will increase costs but will be worth it
Client can cancel transaction anytime prior to closing however this may affect earnest money deposit

Closing Costs for a

Standard Reverse Mortgage settlement costs plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should consider about HECM:

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 may be disbursed on the day of closing by the escrow officer. However, FHA encourages financial institutions to get their counsel’s opinion to assure compliance with Federal or state laws.
Seller incentives are not 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 loan companies will need 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 making use of the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Lenders must be sure the house, when utilized as collateral for the HECM, meets the following property requirements:

1) It’s the borrower’s principal residence;

2) Construction is finished and a certificate of occupancy 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 other liens against the house exist.