A reverse mortgage purchase allows for seniors age 62 or older in state to purchase a new home with HECM loan proceeds. The principal benefit to the senior is the fact that transaction only involves one set of closing costs vs. purchasing a home and obtaining a reverse mortgage thereafter, which will incur two complete sets of closing costs. Created by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Eligible seniors must comply with all HECM requirements, 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 properties
House will need to serve as primary residence
Once HECM purchase is done, no further liens are permitted (Financial institution in 1st position, HUD in silent 2nd)
Will need to provide financial investment at closing from allowable funding source, see below for requirements
Must occupy house within Sixty days of closing
Newly built homes need to have certificate of occupancy

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

The main distinctions concern the properties types that are allowed, the cash needed at closing, the assistance of a real estate professional in the home loan process, the recommendation of a certified home inspection, and certain settlement fees.

Check out these other pages of information:

Citrus Heights, Antelope, Rocklin, Sabre City, Whitney

Permitted Properties

Identical to conventional HECM loans

Ineligible Properties
Cooperative units
Manufactured homes constructed prior to 1976 and without permanent foundation
Bed and breakfast properties, boarding houses

What is the monetary investment requirement?

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

The main difference between principal limit and sales price for the house in state also includes any HECM home loan related fees which aren’t financed or offset by other allowable funding source. Consumers can provide a larger down payment amount to be able to keep a portion of HECM funds for future draws.

What are allowable funding options?

Homeowner may only make use of their personal funds or capital obtained from selling property and assets.
Withdrawals from consumer’s personal savings or pension account are generally satisfactory.

Mortgage companies will be required to validate the origin of all funds in advance of closing. A verification of deposit, together with the latest bank statement, could be used to validate savings and checking accounts. If there is a considerable increase in an account, or the account was opened up recently, the mortgage lender must get a credible justification of the source of those funds. Such paperwork has to be supplied in the FHA case binder. Failure to supply the specified paperwork may result in a notice of rejection and postponement of endorsement.

What funding sources are ineligible?

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

Consumers will not get a bridge loan (also referred to as “gap financing”) or take part in other temporary financing methods to satisfy the financial investment obligation or payment of settlement fees necessary to complete the purchase transaction. This restriction includes subordinate liens, personal loan, cash withdrawals from charge cards, seller financing along with other lending commitments that cannot be satisfied at closing.

What is the Job of the Real Estate Broker?

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

Deciding on a Home for Purchase & Obtaining an Inspection

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

Examines the physical condition: structure, construction, and mechanical systems
Describes issues that ought to be repaired or replaced before the scheduled closing date
Estimates the remaining useful life span of the major systems, equipment, structure, and finishes
Buyers could be at the inspection to ask questions on the condition and maintenance

Required Repairs

Health and safety or architectural integrity issues
Will have to be finished prior to closing by seller
Include in purchase agreement
Buyer can not put any money into repairs before they own the home

Writing an offer

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

Closing Costs for a

Standard Reverse Home Loan costs plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you need to know about reverse mortgage loan:

There’s no 3 day right of rescission contrary to traditional HECM. The 3-day right of rescission period isn’t applicable to HECM for Purchase transactions. Consequently, all initial advances can be disbursed at the time of closing by the settlement agent. However, FHA encourages financial institutions to get their counsel’s opinion to assure compliance with Federal or state laws.
Seller incentives are not applicable to reverse mortgages.
Existing HECM borrowers who take part in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and lenders need to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which are authorized to provide reverse mortgage counseling, must counsel individuals who anticipate using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Mortgage companies need to ensure the house, when utilized as collateral for the HECM, satisfies 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 liens against the house exist.