A reverse mortgage purchase makes it possible for seniors age 62 or older in state to buy a new property with HECM loan proceeds. The primary benefit to the senior is the purchase only requires one set of closing costs vs. purchasing a property and obtaining a reverse mortgage afterwards, which will 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. Qualified seniors must abide by all HECM requirements, all of the basic guidelines apply in combination with a few new regulations and rules.
What are the fundamentals?
Can purchase existing 1 to 4 unit properties
House will need to serve as primary residence
Once HECM purchase is complete, no additional liens are acceptable (Loan provider in 1st position, HUD in silent 2nd)
Will have to supply monetary investment at closing from allowable funding source, see below for information and facts
Will need to live in property within Sixty days of close of escrow
Newly constructed properties require certificate of occupancy
There are a few differences between a HECM for purchase and a traditional HECM for seniors in state.
The key distinctions concern the properties types which are eligible, the money needed at close of escrow, the assistance of a realtor in the mortgage process, the recommendation of a skilled professional property inspection, and specific settlement costs.
Check out these other pages of information:
Arcade, Ben Ali, Arden-Arcade, Del Paso Heights, Hagginwood
Eligible Properties
Identical to traditional HECM loans
Ineligible Properties
Cooperative units
Manufactured housing built before 1976 and without permanent foundation
Bed and breakfast properties, boarding houses
What’s the financial investment requirement?
At close of escrow, HECM borrowers will need to produce a monetary investment which is applied to satisfy the difference between the HECM principal limit and the purchase price for the property, plus any HECM loan associated fees which are not financed or offset by other permitted FHA funding sources. This means that, the proceeds from the reverse mortgage as well as any funds from the sale of the old property (or from the consumer’s savings account) must be enough to purchase the new property outright.
A real difference between principal limit and sales price for the property in state includes any HECM mortgage related costs which are not financed or offset by other allowable funding source. Homeowners can provide a larger investment amount as a way to keep a portion of HECM proceeds for future draws.
What are allowable investment sources?
Borrower may only use their own funds or capital obtained from selling assets.
Withdrawals from consumer’s savings or retirement account are usually satisfactory.
Loan providers are going to be required to verify the origin of all funds before close of escrow. A verification of deposit, in addition to the most up-to-date bank statement, could be used to verify savings and checking accounts. Whether there is a considerable increase in an account, or the account was opened recently, the financial institution must get a valid explanation of the source of those funds. This kind of paperwork must be provided in the FHA case binder. Failing to provide the required paperwork could lead to a notice of denial and postponement of endorsement.
Which funding resources are ineligible?
Gifts
Loan discount points
Rate buy downs
Settlement cost assistance
Builder incentives
Seller 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 (also known as “gap financing”) or participate in other interim financing techniques to satisfy the monetary investment obligation or payment of settlement costs necessary to close the purchase transaction. This restriction includes subordinate liens, unsecured loans, cash withdrawals from charge cards, seller financing along with 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 – make sure you include contingencies for the sale of the senior’s previous property, the property inspection, etc.
Selecting 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 (This is recommended but not required)
Examines the physical condition: structure, construction, and mechanical systems
Determines issues that need to be repaired or replaced prior to the scheduled close of escrow date
Estimates the remaining useful life of the major systems, equipment, structure, and finishes
Buyers could be at the inspection to ask questions on the condition and maintenance
Required Repairs
Health and safety or architectural integrity issues
Need to be finished prior to closing by seller
Include in purchase agreement
Buyer can not put any cash into repairs before they own the property
Writing an offer
Must state offer conditional on sufficient inspection conducted by qualified home inspector
Borrower may want attorney to review – raises costs but can be worth it
Client can cancel transaction any time prior to closing but this may affect earnest money deposit
Settlement Fees for a
Standard HECM costs plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you need to understand about local reverse mortgage experts:
There’s no three day right of rescission contrary to traditional HECM. The three-day right of rescission period isn’t applicable to HECM for Purchase transactions. Consequently, all initial advances may be disbursed on the day of closing by the settlement agent. However, FHA encourages lenders to get their counsel’s opinion to ensure 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 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 which are approved to provide reverse mortgage counseling, must counsel those 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 need to be sure that the property, when used as collateral for the HECM, satisfies the following property requirements:
1) It is the borrower’s primary residence;
2) Construction is complete and a occupancy certification or similar was issued;
3) Any construction mortgage financing for the property, 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 property exist.