A reverse mortgage purchase enables seniors age 62 or older in state to buy a new house with HECM loan proceeds. The key benefit to the senior is the transaction only requires one set of settlement costs vs. buying a house 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, the program became live on January 1, 2009. Eligible seniors must adhere to all HECM requirements, all the standard rules apply along 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 done, no further liens are permitted (Financial institution in 1st position, HUD in silent 2nd)
Will have to supply financial investment at closing from allowed funding source, see below for requirements
Will need to live in property within 60 days of close of escrow
Newly built homes need to have certificate of occupancy

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

The key differences concern the properties types that are qualified, the money required at close of escrow, the assistance of a real estate broker in the mortgage loan process, the recommendation of a qualified professional house inspection, and specific closing costs.

Check out these other pages of information:

Rio Linda, McClellan Park, North Highlands, Sabre City, Walerga

Eligible Properties

Identical to standard HECM loans

Ineligible Properties
Cooperative units
Manufactured housing constructed prior to 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses

What is the financial investment requirement?

At close of escrow, HECM borrowers must provide a financial investment which is applied to fulfill the difference between the HECM principal limit and the purchase price for the property, in addition to any HECM loan associated expenses that aren’t financed or offset by other permitted FHA funding sources. This means that, the funds from the reverse mortgage and any funds from the sale of the old property (or from the borrower’s personal savings) will have to be adequate to purchase the new property outright.

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

What are allowed funding sources?

Homeowner may only use their personal capital or cash obtained from selling properties and assets.
Withdrawals from borrower’s personal savings or retirement account are generally satisfactory.

Loan companies will be required to verify the origin of all the resources in advance of close of escrow. A verification of deposit, in addition to the most recent bank statement, may be used to verify savings and checking accounts. When there’s a considerable increase in an account, or the account was opened fairly recently, the financial institution will have to obtain a valid explanation of the source of those funds. This sort of documents will have to be provided in the FHA case binder. Failing to supply the mandatory documentation may lead to a notice of rejection and delay of endorsement.

What funding sources are ineligible?

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

Consumers may not obtain a bridge loan (generally known as “gap financing”) or engage in other temporary financing techniques to fulfill the financial investment requirement or payment of closing costs needed to close the purchase transaction. This restriction includes subordinate liens, unsecured loans, cash withdrawals from credit cards, seller financing along with other lending commitments that can not be satisfied at closing.

What is the Function of the Real Estate Agent?

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

Deciding on a Home for Purchase & Obtaining an Home inspection

All seniors are strongly encouraged by HUD to get a home inspection from a licensed certified home inspector (This is advised but is not mandatory)

Evaluates the physical condition: structure, construction, and mechanical systems
Describes issues that ought to be repaired or replaced before the scheduled close of escrow date
Estimates the remaining practical life of the key systems, equipment, structure, and finishes
Buyers can be at the inspection to ask questions about the condition and maintenance

Required Repairs

Health and safety or architectural integrity issues
Have to be finished prior to closing by seller
Include in purchase agreement
Buyer cannot put any money into repairs before they own the house

Writing an offer

Must state offer conditional on acceptable inspection conducted by qualified inspector
Borrower may want attorney to review – will increase fees but can be worth it
Client can cancel transaction at any time before closing however, this may affect earnest money deposit

Closing Costs for a

Standard Reverse Loan costs plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should know about reverse mortgage near me in California:

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 could be disbursed at the time of closing by the escrow officer. However, FHA encourages loan companies to get their counsel’s opinion to ensure compliance with Federal or state laws.
Seller incentives aren’t applicable to reverse mortgages.
Existing HECM borrowers who get involved in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and mortgage companies must enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which are authorized to provide reverse mortgage counseling, must counsel those that anticipate making use of the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Loan companies need to ensure the property, when used as collateral for the HECM, satisfies the following property requirements:

1) It is the borrower’s principal residence;

2) Construction is complete and a occupancy certification or its equivalent was issued;

3) Any construction mortgage loan financing for the property, 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, at the time of closing, no other liens against the property exist.