A reverse mortgage purchase allows seniors age 62 or older in state to purchase a new property with HECM loan proceeds. The principal benefit to the senior is that the purchase only involves one set of closing costs vs. purchasing a property and getting a reverse mortgage after, which would incur two complete sets of closing costs. Developed by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Qualified seniors must conform to all HECM standards, each of the basic rules apply in combination with a few new regulations.
A few of the fundamentals?
Can buy existing 1 to 4 unit property
House must serve as primary residence
Once HECM purchase is completed, no further liens are permitted (Lender in 1st position, HUD in silent 2nd)
Must provide financial investment at closing from allowed funding source, see below for information and facts
Will need to live in property within 60 days of closing
Newly built properties needs to have certificate of occupancy
There are some variations between a HECM for purchase and a classic HECM for seniors in state.
The key distinctions concern the properties types which are permitted, the funds needed at closing, the involvement of a real estate broker in the home loan process, the recommendation of a certified property inspection, and certain closing costs.
Check out these other pages of information:
Walerga, North Highlands, Antelope, McClellan Park, Sabre City
Permitted Properties
Same as standard HECM mortgages
Ineligible Properties
Cooperative units
Manufactured homes constructed before 1976 and without permanent foundation
Bed and breakfast properties, boarding houses
What is the financial investment requirement?
At closing, HECM borrowers will have to supply a financial investment which is applied to fulfill the difference between the HECM principal limit and the sales price for the property, as well as any HECM loan associated expenses that are not financed or offset by other permitted FHA funding sources. Basically, 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 sufficient to buy the new property outright.
A real difference between principal limit and sales price for the property in state includes any HECM home loan related fees that are not financed or offset by other permitted funding source. Consumers may provide a larger down payment amount so that they can retain a percentage of HECM funds for future draws.
What are allowed financing options?
Consumer may only make use of their personal funds or cash obtained from selling property and assets.
Withdrawals from borrower’s savings or retirement account are generally satisfactory.
Mortgage companies will be required to confirm the source of all funds in advance of closing. A verification of deposit, together with the most up-to-date bank statement, could be used to confirm savings and checking accounts. When there is a significant increase in an account, or the account was opened fairly recently, the lending company will need to get a legitimate explanation of the source of those funds. This kind of documents will have to be made available in the FHA case binder. Failure to produce the necessary documents may lead to a notice of rejection and postponement of endorsement.
What funding resources are ineligible?
Gifts
Loan discount points
Rate buy downs
Settlement cost assistance
Building contractors incentives
Home owner contributions or home owner financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)
Consumers will not get a bridge loan (generally known as “gap financing”) or take part in other interim financing strategies to meet the financial investment obligation or payment of closing costs required to complete the purchase transaction. This limitation is comprised of subordinate liens, unsecured loans, cash withdrawals from credit cards, seller financing along with other lending commitments that cannot be satisfied at closing.
What is the Job of the Real Estate Agent?
Seniors in state must consider a written contract – you should include contingencies for the sale of the senior’s previous property, the property inspection, etc.
Deciding on a Home for Purchase & Obtaining an Inspection
All seniors are strongly encouraged by HUD to have a home inspection from a licensed qualified home inspector (It is advised but not mandatory)
Evaluates the physical condition: structure, construction, and mechanical systems
Describes items that should be repaired or replaced before the scheduled closing date
Estimates the remaining useful life of the key 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
Need to be finished prior to closing by seller
Include in purchase agreement
Buyer can not put any money into repairs before they own the property
Writing an offer
Must state offer contingent on acceptable inspection done by qualified inspector
Borrower may wish attorney to review – raises fees but will be worth it
Client can cancel transaction anytime before closing however, this may affect earnest money deposit
Closing 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 company in California:
There is no three day right of rescission contrary to traditional HECM. The three-day right of rescission period is not applicable to HECM for Purchase transactions. Therefore, all initial advances could be disbursed at the time of closing by the escrow company. However, FHA encourages financial institutions to get their counsel’s opinion to ensure compliance with Federal or state laws.
Seller incentives are not applicable to reverse mortgages.
Existing HECM borrowers who engage in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and financial institutions will have to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which are authorised to provide reverse mortgage counseling, must counsel people who anticipate making use of the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Mortgage companies will need to make sure the property, when used as collateral for the HECM, satisfies the following property requirements:
1) It is the borrower’s primary residence;
2) Construction is completed and a certificate of occupancy or its equivalent was issued;
3) Any construction home loan financing for the property, 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 liens against the property exist.