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 fact that transaction only involves one set of closing costs vs. purchasing a house and getting a reverse mortgage afterwards, which would incur two complete sets of closing costs. Developed by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Eligible seniors must abide by all HECM requirements, each of the standard rules apply together with a few new rules and regulations.

What are the basics?

Can buy existing 1 to 4 unit property
Home must serve as principal residence
Once HECM purchase is finished, no additional liens are acceptable (Loan provider in 1st position, HUD in silent 2nd)
Will need to supply financial investment at closing from allowed funding source, see below for specifics
Need to live in house within 60 days of closing
Newly built properties must have certificate of occupancy

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

The major distinctions concern the properties types which are allowed, the money needed at closing, the involvement of a real estate agent in the mortgage loan process, the recommendations of a qualified professional house inspection, and specific settlement costs.

Check out these other pages of information:

Walnut Trailer Villa, Riverside Mobile Home Park, El Rancho Mobile Park, Capitol City Recreational Vehicle and Mobile Home Park, Trails End Mobile Home Park

Permitted Properties

Same as conventional HECM mortgages

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

What’s the monetary investment requirement?

At closing, HECM borrowers will have to produce a financial investment which is applied to satisfy the difference between the HECM principal limit and the sales price for the house, plus any HECM loan connected expenses that aren’t financed or offset by other allowed FHA funding sources. This means that, the funds from the reverse mortgage and any cash from the sale of the old house (or from the consumer’s savings account) must be sufficient to buy the new house outright.

The primary difference between principal limit and sales price for the house in state includes any HECM mortgage loan related fees that aren’t financed or offset by other allowable funding source. Homeowners could provide a larger investment amount in order to keep a portion of HECM funds for future draws.

What are allowed investment sources?

Homeowner can only use their own funds or capital obtained from the sale of assets.
Withdrawals from consumer’s personal savings or pension account are usually acceptable.

Lenders are going to be required to validate the source of all the money prior to closing. A verification of deposit, together with the most recent bank statement, may be used to validate savings and checking accounts. If there is a considerable increase in an account, or the account was opened recently, the mortgage lender must get a valid clarification of the source of those funds. Such documents must be made available in the FHA case binder. Failure to supply the mandatory paperwork could lead to a notice of denial and postponement of endorsement.

What funding sources are ineligible?

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

Homeowners will not get a bridge loan (often known as “gap financing”) or engage in other temporary financing strategies to fulfill the financial investment requirement or payment of settlement costs needed to close the purchase transaction. This limitation is comprised of subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and also any other lending obligations that cannot be satisfied at closing.

What’s the Function of the Real Estate Agent?

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

Choosing a House for Purchase & Obtaining an Inspection

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

Assesses the soundness: structure, construction, and mechanical systems
Describes items that ought to be repaired 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 about the condition and maintenance

Required Repairs

Health and safety or structural integrity issues
Must 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 satisfactory inspection conducted by qualified inspector
Borrower might want attorney to review – increases costs but can be worth it
Client can cancel transaction anytime prior to closing however, this may affect earnest money deposit

Settlement Fees for a

Standard Reverse Loan fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should know about reverse mortgage specialist in California:

There is no 3 day right of rescission unlike traditional HECM. The 3-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 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 providers will have to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies that have been approved 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.
Lenders will have to make sure the house, when used as collateral for the HECM, satisfies the following property requirements:

1) It is the borrower’s principal residence;

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

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