A reverse mortgage purchase makes it possible for seniors age 62 or older in state to buy a new house with HECM loan proceeds. The primary benefit to the senior is that the purchase only involves one set of settlement costs vs. buying a house and getting a reverse mortgage thereafter, which would incur two complete sets of settlement costs. Created by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Qualified seniors must comply with all HECM standards, all of the standard regulations apply in combination with a few new regulations and rules.

A few of the basics?

Can buy existing 1 to 4 unit property
Home must serve as primary residence
Once HECM purchase is finished, no further liens are acceptable (Loan provider in 1st position, HUD in silent 2nd)
Will need to supply financial investment at closing from allowable funding source, see below for details
Need to reside in house within Sixty days of closing
Newly built houses need to have certificate of occupancy

There are some variations between a HECM for purchase and a classic HECM for seniors in state.

The key differences concern the properties types which are qualified, the funds needed at closing, the involvement of a real estate broker in the home loan process, the recommendations of a qualified professional house inspection, and certain settlement costs.

Check out these other pages of information:

Elverta, McClellan Park, North Highlands, Walerga, Foothill Farms

Eligible Properties

Identical to standard HECM mortgages

Ineligible Properties
Cooperative units
Manufactured housing built before 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses

What is the monetary investment requirement?

At closing, HECM borrowers will need to supply a financial investment that will be applied to satisfy the difference between the HECM principal limit and the purchase price for the house, along with any HECM loan associated fees that aren’t financed or offset by other permitted FHA funding sources. In other words, the proceeds from the reverse mortgage and any funds from the sale of the old house (or from the homeowner’s personal savings) needs to be enough to purchase the new house outright.

The difference between principal limit and sales price for the house in state includes any HECM home loan related costs that aren’t financed or offset by other allowable funding source. Borrowers can provide a larger investment amount so that they can maintain a percentage of HECM proceeds for future draws.

What are allowable investment sources?

Borrower can only use their personal capital or money obtained from the sale of financial assets.
Withdrawals from homeowner’s personal savings or retirement account will be satisfactory.

Loan providers are going to be required to validate the origin of all the resources in advance of closing. A verification of deposit, together with the most up-to-date bank statement, could be used to validate savings and checking accounts. Whether there is a substantial increase in an account, or the account was opened recently, the mortgage lender will need to get a credible clarification of the source of those funds. This sort of paperwork needs to be presented in the FHA case binder. Failure to provide the specified paperwork may lead to a notice of rejection and postponement of endorsement.

Which funding resources are ineligible?

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

Borrowers may not get a bridge loan (often known as “gap financing”) or participate in other interim financing techniques to fulfill the financial investment obligation or payment of settlement costs required to finalize the purchase transaction. This limitation is comprised of subordinate liens, personal loan, cash withdrawals from charge cards, seller financing and any other lending commitments that can’t be satisfied at closing.

What is the Job of the Realtor?

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

Choosing a Home for Purchase & Getting an Inspection

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

Assesses the physical condition: structure, construction, and mechanical systems
Specifies items which ought to be fixed or replaced before the scheduled closing date
Estimates the remaining practical life of the key 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
Needs to be finished prior to closing by seller
Include in purchase agreement
Buyer can not put any cash into repairs before they own the house

Writing an offer

Must state offer contingent on satisfactory inspection done by qualified inspector
Borrower may wish attorney to review – increases costs but may be worth it
Client can cancel transaction any time prior to closing however, this could affect earnest money deposit

Settlement Fees for a

Standard Reverse Home Loan closing costs plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should know about Home Equity Conversion Mortgage in California:

There is no three day right of rescission unlike traditional HECM. The three-day right of rescission period is not applicable to HECM for Purchase transactions. Consequently, all initial advances could be paid at the time of closing by the settlement agent. However, FHA encourages lenders to seek their counsel’s opinion to assure compliance with Federal or state laws.
Seller incentives 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 loan companies will need to enter the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which are authorised to provide reverse mortgage counseling, must counsel those who anticipate using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Loan providers will need to ensure the house, when used as collateral for the HECM, meets the following property requirements:

1) It’s the borrower’s primary residence;

2) Construction is finished and a C of O or its equivalent has been issued;

3) Any construction home 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.