A reverse mortgage purchase allows for seniors age 62 or older in state to purchase a new property with HECM loan proceeds. The key benefit to the senior is the transaction only involves one set of settlement costs vs. buying a property and obtaining a reverse mortgage thereafter, which would incur two complete sets of settlement costs. Created by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Eligible seniors must adhere to all HECM requirements, all the basic rules apply in addition to some new rules and regulations.
A few of the fundamentals?
Can buy existing 1 to 4 unit property
Property must serve as principal residence
Once HECM purchase is finished, no further liens are acceptable (Loan provider in 1st position, HUD in silent 2nd)
Will need to provide financial investment at closing from permitted funding source, see below for requirements
Need to live in home within 60 days of closing
Newly built houses need to have certificate of occupancy
There are several differences between a HECM for purchase and a conventional HECM for seniors in state.
The key differences concern the properties types which are permitted, the cash required at closing, the assistance of a real estate professional in the loan process, the recommendations of a professional property inspection, and certain settlement costs.
Check out these other pages of information:
Antelope, North Highlands, Foothill Farms, Walerga, Citrus Heights
Eligible Properties
Identical to regular HECM mortgages
Ineligible Properties
Cooperative units
Manufactured housing built before 1976 and without permanent foundation
Bed and breakfast properties, boarding houses
What is the monetary investment requirement?
At closing, 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 home, in addition to any HECM loan connected fees that aren’t financed or offset by other allowed FHA funding sources. Basically, the funds from the reverse mortgage and any money from the sale of the old home (or from the consumer’s personal savings) must be enough to purchase the new home outright.
The difference between principal limit and sales price for the home in state includes any HECM loan related costs that aren’t 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 permitted investment sources?
Borrower can only make use of their own funds or funds obtained from selling assets.
Withdrawals from consumer’s personal savings or retirement account are satisfactory.
Loan companies will be required to verify the source of all the resources prior to closing. A verification of deposit, together with the most up-to-date bank statement, may be used to verify savings and checking accounts. When there is a substantial increase in an account, or the account was opened up recently, the lending company will need to get a legitimate justification of the source of those funds. This kind of documents must be supplied in the FHA case binder. Failing to provide the specified paperwork could lead to a notice of denial and postponement of endorsement.
Which funding resources are ineligible?
Gifts
Loan discount points
Rate buy downs
Settlement cost assistance
Building contractors incentives
Home owner contributions or property owner financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)
Consumers may not get a bridge loan (also known as “gap financing”) or engage in other interim financing techniques to meet the financial investment requirement or payment of settlement costs needed to close the purchase transaction. This limitation encompasses subordinate liens, personal loans, cash withdrawals from charge cards, seller financing and also any other lending commitments that cannot be satisfied at closing.
What is the Function of the Real Estate Agent?
Seniors in state must consider a written agreement – you need to include contingencies for the sale of the senior’s previous property, the property inspection, etc.
Deciding on a Property for Purchase & Getting an Home inspection
All seniors are strongly encouraged by HUD to get a home inspection from a licensed skilled professional home inspector (This is suggested however it is not mandatory)
Assesses the soundness: structure, construction, and mechanical systems
Identifies items which should be fixed or replaced prior to the scheduled closing date
Estimates the remaining practical life of the main systems, equipment, structure, and finishes
Buyers should be at the inspection to ask questions on the condition and maintenance
Required Repairs
Health and safety or structural integrity issues
Needs to be completed 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 satisfactory inspection performed by qualified inspector
Borrower might wish attorney to review – raises expenses but may be worth it
Client may cancel transaction anytime before closing but this could affect earnest money deposit
Settlement Costs for a
Standard Reverse Home Loan settlement fees plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you ought to know about local reverse mortgage lenders:
There’s no three day right of rescission unlike traditional HECM. The three-day right of rescission period isn’t applicable to HECM for Purchase transactions. Consequently, all initial advances may be disbursed at the time 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 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 mortgage companies must enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies that have been accredited 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 must ensure the home, when utilized as collateral for the HECM, meets the following property requirements:
1) It is the borrower’s principal residence;
2) Construction is complete and a C of O or its equivalent was issued;
3) Any construction loan financing for the home, 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 liens against the home exist.