A reverse mortgage purchase enables seniors age 62 or older in state to buy a new home with HECM loan proceeds. The key benefit to the senior is the transaction only involves one set of settlement costs vs. purchasing a home and obtaining a reverse mortgage afterwards, 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 adhere to all HECM requirements, each of the standard guidelines apply along with some new regulations.
What are the fundamentals?
Can purchase existing 1 to 4 unit properties
Home will need to serve as primary residence
Once HECM purchase is done, no additional liens are acceptable (Financial institution in 1st position, HUD in silent 2nd)
Will need to provide financial investment at closing from allowable funding source, see below for information and facts
Will need to live in home within Sixty days of close of escrow
Newly constructed properties needs to have certificate of occupancy
There are several variations between a HECM for purchase and a traditional HECM for seniors in state.
The main distinctions concern the properties types that are qualified, the money required at close of escrow, the involvement of a realtor in the mortgage process, the recommendations of a qualified home inspection, and specific settlement costs.
Check out these other pages of information:
Folsom, Natoma, Orangevale, Alder Creek, Nimbus
Eligible Properties
Same as standard HECM mortgages
Ineligible Properties
Cooperative units
Manufactured housing constructed prior to 1976 and lacking permanent foundation
Bed and breakfast properties, boarding houses
What’s the monetary investment requirement?
At close of escrow, HECM borrowers need to produce a financial investment that will be applied to fulfill the difference between the HECM principal limit and the purchase price for the home, in addition to any HECM loan related fees which are not financed or offset by other permitted FHA funding sources. In other words, the funds from the reverse mortgage as well as any money from the sale of the old home (or from the homeowner’s savings account) will have to be sufficient to buy the new home outright.
The difference between principal limit and sales price for the home in state also includes any HECM mortgage related costs which are not financed or offset by other allowable funding source. Consumers may provide a larger down payment amount to be able to retain a portion of HECM funds for future draws.
What are allowable financing options?
Homeowner may use their own funds or money obtained from the sale of financial assets.
Withdrawals from homeowner’s savings or pension account are acceptable.
Loan companies will be required to confirm the original source of all the resources prior to close of escrow. A verification of deposit, along with the most up-to-date 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 fairly recently, the financial institution must obtain a valid justification of the source of those funds. This sort of paperwork will have to be presented in the FHA case binder. Failing to supply the specified paperwork could lead to a notice of rejection and postponement of endorsement.
What funding resources are ineligible?
Gifts
Loan discount points
Interest rate buy downs
Settlement cost assistance
Home builder incentives
Seller contributions or property owner financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)
Consumers will not obtain a bridge loan (also called “gap financing”) or engage in other temporary financing methods to meet the financial investment obligation or payment of settlement costs necessary to close the purchase transaction. This restriction encompasses subordinate liens, unsecured loans, cash withdrawals from charge cards, seller financing and also any other lending obligations that cannot be satisfied at closing.
What’s the Job of the Real Estate Agent?
Seniors in state must consider a written agreement – you should include contingencies for the sale of the senior’s previous home, the house inspection, etc.
Deciding on a Property for Purchase & Obtaining an Inspection
All seniors are strongly encouraged by HUD to get a home inspection from a licensed professional home inspector (It’s advised but not mandatory)
Assesses the physical condition: structure, construction, and mechanical systems
Determines items which need to be repaired or replaced prior to the scheduled close of escrow date
Estimates the remaining useful 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
Must be finished prior to closing by seller
Include in purchase agreement
Buyer can’t put any money into repairs before they own the home
Writing an offer
Must state offer conditional on sufficient inspection performed by qualified inspector
Borrower might wish attorney to review – increases fees but may be worth it
Client can cancel transaction at any time before closing but this may affect earnest money deposit
Settlement Fees for a
Standard Reverse Home Loan settlement costs plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you ought to know about reverse mortgage loans in California:
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 may be disbursed at the time of closing by the escrow officer. However, FHA encourages lenders to seek 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 mortgage companies need to enter the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which have been approved to provide reverse mortgage counseling, must counsel individuals who anticipate utilizing 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 home, 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 occupancy certificate or similar has been issued;
3) Any construction mortgage financing for the home, 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 home exist.