A reverse mortgage purchase allows seniors age 62 or older in state to buy a new house with HECM loan proceeds. The principal benefit to the senior is that the transaction only requires one set of settlement costs vs. buying a house and obtaining a reverse mortgage afterwards, which will 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 conform to all HECM standards, each of the standard rules apply in combination with some new guidelines.

What are the basics?

Can buy existing 1 to 4 unit properties
Home will need to serve as primary residence
Once HECM purchase is done, no further liens are permitted (Lender in 1st position, HUD in silent 2nd)
Must supply financial investment at closing from allowed funding source, see below for details
Will have to live in house within Sixty days of closing
Newly constructed houses needs to have certificate of occupancy

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

The main differences concern the properties types that are qualified, the cash required at closing, the assistance of a real estate broker in the mortgage process, the recommendation of a qualified professional house inspection, and certain settlement fees.

Check out these other pages of information:

Granite Bay, Loomis, Rocklin, Folsom, Penryn

Permitted Properties

Identical to conventional HECM loans

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

What is the monetary investment requirement?

At closing, HECM borrowers will need to provide a financial investment which is applied to fulfill the difference between the HECM principal limit and the sales price for the house, in addition to any HECM loan related fees which aren’t financed or offset by other permitted FHA funding sources. In other words, the proceeds from the reverse mortgage as well as any cash from the sale of the old house (or from the consumer’s personal savings) will have to be sufficient to buy the new house outright.

The primary difference between principal limit and sales price for the house in state also includes any HECM mortgage related costs which aren’t financed or offset by other allowable funding source. Homeowners could provide a larger investment amount as a way to retain a portion of HECM proceeds for future draws.

What are allowed financing resources?

Homeowner can only make use of their personal money or money obtained from the sale of property and assets.
Withdrawals from consumer’s savings or retirement account are generally satisfactory.

Loan providers will be required to confirm the origin of all funds before closing. A verification of deposit, along with the most up-to-date bank statement, could be used to confirm savings and checking accounts. If there is a substantial increase in an account, or the account was opened up recently, the lending company must get a legitimate justification of the source of those funds. This sort of paperwork will have to be made available in the FHA case binder. Failure to supply the required paperwork may result in a notice of denial and postponement of endorsement.

Which funding resources are ineligible?

Gifts
Loan discount points
Interest rate buy downs
Settlement cost assistance
Builders incentives
Home owner contributions or homeowner financing
Charge 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 take part in other interim financing techniques to fulfill the financial investment obligation or payment of settlement fees required to complete the purchase transaction. This restriction is comprised of subordinate liens, personal loans, cash withdrawals from charge cards, seller financing and any other lending obligations that cannot be satisfied at closing.

What is the Purpose of the Realtor?

Seniors in state should consider a written contract – it is best to include contingencies for the sale of the senior’s previous house, the home inspection, etc.

Choosing a Home for Purchase & Obtaining an Inspection

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

Assesses the soundness: structure, construction, and mechanical systems
Specifies issues that need to be repaired or replaced prior to the scheduled closing date
Estimates the remaining useful life span 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 structural integrity issues
Must be finished prior to closing by seller
Include in purchase agreement
Buyer can’t put any money into repairs before they own the house

Writing an offer

Must state offer contingent on sufficient inspection done by qualified home inspector
Borrower may want attorney to review – increases costs but may be worth it
Client may cancel transaction any time before closing however this could affect earnest money deposit

Settlement Costs for a

Standard Reverse Mortgage settlement fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you ought to know about reverse mortgage lender:

There is 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. Therefore, all initial advances could be disbursed on the day of closing by the escrow officer. However, FHA encourages lenders to seek their counsel’s opinion to assure compliance with Federal or state laws.
Seller concessions aren’t applicable to reverse mortgages.
Existing HECM borrowers who participate in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and loan companies will need to enter the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which are accredited to provide reverse mortgage counseling, must counsel people who anticipate using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Loan providers are required to make sure the house, when utilized 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 its equivalent has been issued;

3) Any construction mortgage financing for the house, 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, during closing, no liens against the house exist.