A reverse mortgage purchase enables 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 requires one set of settlement costs vs. purchasing a home and obtaining a reverse mortgage after, which would have two complete sets of settlement costs. Developed by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Qualified seniors must adhere to all HECM requirements, all the standard guidelines apply in combination with a few new rules and regulations.
What are the basics?
Can purchase existing 1 to 4 unit property
Property must serve as primary residence
Once HECM purchase is done, no further liens are permitted (Lender in 1st position, HUD in silent 2nd)
Will need to supply financial investment at closing from permitted funding source, see below for specifics
Will have to live in home within 60 days of close of escrow
Newly built properties have to have certificate of occupancy
There are a few differences between a HECM for purchase and a conventional HECM for seniors in state.
The main differences concern the properties types which are permitted, the cash needed at close of escrow, the involvement of a real estate broker in the mortgage loan process, the recommendation of a qualified home inspection, and certain settlement costs.
Check out these other pages of information:
Hidden Valley, Loomis, Rocklin, Folsom, Penryn
Eligible Properties
Same as 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 monetary investment requirement?
At close of escrow, HECM borrowers will need to supply a financial investment which is applied to satisfy the difference between the HECM principal limit and the purchase price for the home, in addition to any HECM loan related fees that are not financed or offset by other allowed FHA funding sources. This means that, the funds from the reverse mortgage as well as any money from the sale of the old home (or from the borrower’s savings account) must be sufficient to purchase the new home outright.
The difference between principal limit and sales price for the home in state also includes any HECM mortgage loan related costs that are not financed or offset by other permitted funding source. Borrowers may provide a larger down payment amount in order to retain a percentage of HECM funds for future draws.
What are permitted financing options?
Consumer may make use of their personal capital or money obtained from the sale of assets.
Withdrawals from borrower’s personal savings or pension account are usually satisfactory.
Lenders are going to be required to confirm the source of all the money in advance of close of escrow. A verification of deposit, in addition to the latest bank statement, could be used to confirm savings and checking accounts. If there is a considerable increase in an account, or the account was opened recently, the lending company must get a legitimate explanation of the source of those funds. This type of paperwork must be provided in the FHA case binder. Failing to supply the specified paperwork could lead to a notice of rejection and postponement of endorsement.
Which funding sources are ineligible?
Gifts
Loan discount points
Mortgage rate buy downs
Closing cost assistance
Builders incentives
Home owner contributions or home owner financing
Charge card advances
Secured or non-secured loans from another asset (car, home equity)
Borrowers may not get a bridge loan (also known as “gap financing”) or take part in other temporary financing methods to fulfill the financial investment obligation or payment of settlement costs required to complete the purchase transaction. This restriction is comprised of subordinate liens, personal loan, cash withdrawals from charge cards, seller financing and also any other lending obligations that can’t be satisfied at closing.
What’s the Role of the Real Estate Agent?
Seniors in state should consider a written arrangement – you should include contingencies for the sale of the senior’s previous home, the property inspection, etc.
Selecting 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’s suggested but is not required)
Examines the soundness: structure, construction, and mechanical systems
Identifies issues that ought to be fixed or replaced prior to the scheduled close of escrow date
Estimates the remaining practical life span of the main 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 architectural integrity issues
Will have to be completed prior to closing by seller
Include in purchase agreement
Buyer can’t put any cash into repairs before they own the home
Writing an offer
Must state offer conditional on satisfactory inspection done by qualified inspector
Borrower may wish attorney to review – increases fees but can be worth it
Client may cancel transaction any time before closing however this could affect earnest money deposit
Settlement Fees for a
Standard HECM fees plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you should consider about reverse mortgage lender in California:
There’s no three day right of rescission unlike traditional HECM. The three-day right of rescission period is not applicable to HECM for Purchase transactions. As a result, all initial advances can be disbursed at the time of closing by the escrow officer. However, FHA encourages financial institutions to seek their counsel’s opinion to ensure compliance with Federal or state laws.
Seller concessions aren’t applicable to reverse mortgages.
Existing HECM borrowers who take part in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and financial institutions will need to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which 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.
Lenders need to be sure that the home, 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 certificate of occupancy or similar has been issued;
3) Any construction mortgage loan 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.