A reverse mortgage purchase makes it possible for seniors age 62 or older in state to purchase a new property with HECM loan proceeds. The main benefit to the senior is that the purchase only involves one set of settlement costs vs. buying a property and obtaining a reverse mortgage after, which would have two complete sets of settlement costs. Created by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Eligible seniors must conform to all HECM standards, all the standard guidelines apply in combination with a few new guidelines.
A few of the basics?
Can purchase existing 1 to 4 unit property
Property must serve as principal residence
Once HECM purchase is completed, no additional liens are acceptable (Lender in 1st position, HUD in silent 2nd)
Will need to supply monetary investment at closing from allowed funding source, see below for information and facts
Need to occupy house within 60 days of close of escrow
Newly built houses will 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 distinctions concern the properties types which are allowed, the cash needed at close of escrow, the assistance of a real estate professional in the loan process, the recommendation of a skilled professional property inspection, and certain settlement fees.
Check out these other pages of information:
Walerga, North Highlands, Foothill Farms, Rio Linda, Sabre City
Permitted Properties
Same as regular HECM loans
Ineligible Properties
Cooperative units
Manufactured homes built before 1976 and without permanent foundation
Bed and breakfast properties, boarding houses
What is the monetary investment requirement?
At close of escrow, HECM borrowers must produce a monetary investment which is applied to satisfy the difference between the HECM principal limit and the sales price for the house, in addition to any HECM loan related expenses which are not financed or offset by other allowed FHA funding sources. Basically, the proceeds from the reverse mortgage as well as any money from the sale of the old house (or from the consumer’s savings account) must be adequate to purchase the new house outright.
The main difference between principal limit and sales price for the house in state also includes any HECM loan related costs which are not financed or offset by other permitted funding source. Homeowners can provide a larger down payment amount so that they can retain a portion of HECM proceeds for future draws.
What are allowed funding resources?
Consumer may only use their own money or funds obtained from selling financial assets.
Withdrawals from consumer’s personal savings or retirement account will be satisfactory.
Loan companies are going to be required to confirm the source of all the funds before close of escrow. A verification of deposit, in addition to the latest bank statement, may be used to confirm savings and checking accounts. Whether there is a considerable increase in an account, or the account was opened up recently, the lending company will have to get a credible justification of the source of those funds. This sort of documents must be presented in the FHA case binder. Failing to supply the mandatory documentation may result in a notice of rejection and postponement of endorsement.
Which funding resources are ineligible?
Gifts
Loan discount points
Interest rate buy downs
Settlement cost assistance
Builders incentives
Seller contributions or homeowner financing
Charge card advances
Secured or non-secured loans from another asset (car, home equity)
Homeowners may not get a bridge loan (generally known as “gap financing”) or participate in other temporary financing strategies to satisfy the monetary investment requirement or payment of settlement fees necessary to complete the purchase transaction. This restriction may include subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and also any other lending commitments that can not be satisfied at closing.
What is the Role of the Realtor?
Seniors in state must consider a written arrangement – make sure you include contingencies for the sale of the senior’s previous property, the property inspection, etc.
Selecting a Property for Purchase & Getting an Inspection
All seniors are strongly encouraged by HUD to get a home inspection from a licensed professional home inspector (This is recommended but not mandatory)
Examines the soundness: structure, construction, and mechanical systems
Determines items that should be fixed or replaced prior to the scheduled close of escrow date
Estimates the remaining useful life of the main systems, equipment, structure, and finishes
Buyers can be at the inspection to ask questions regarding 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 property
Writing an offer
Must state offer conditional on sufficient inspection performed by qualified home inspector
Borrower may wish attorney to review – will increase costs but will be worth it
Client may cancel transaction anytime before closing but this could affect earnest money deposit
Closing Costs for a
Standard HECM settlement fees plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you need to understand 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 on the day of closing by the settlement agent. However, FHA encourages loan companies to get their counsel’s opinion to assure compliance with Federal or state laws.
Seller concessions are not 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 approved to provide reverse mortgage counseling, must counsel those who 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 will need to be sure that 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 complete and a occupancy certification or its equivalent was issued;
3) Any construction 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, during closing, no other liens against the house exist.