A reverse mortgage purchase enables seniors age 62 or older in state to purchase a new house with HECM loan proceeds. The main benefit to the senior is the fact that transaction only involves one set of closing costs vs. purchasing a house and obtaining a reverse mortgage after, which would 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. Qualified seniors must abide by all HECM standards, all the basic regulations apply in addition to some new guidelines.
What are the basics?
 Can purchase existing 1 to 4 unit properties
 Home must serve as primary residence
 Once HECM purchase is finished, no further liens are permitted (Loan provider in 1st position, HUD in silent 2nd)
 Will need to provide financial investment at closing from allowable funding source, see below for details
 Need to occupy home within Sixty days of close of escrow
 Newly built houses need to have certificate of occupancy
There are a few differences between a HECM for purchase and a traditional HECM for seniors in state.
The key distinctions concern the properties types which are permitted, the cash needed at close of escrow, the assistance of a real estate broker in the mortgage process, the recommendation of a professional house inspection, and certain settlement costs.
Check out these other pages of information:
Alder Creek, Gold River, Natoma, Folsom Junction, Fair Oaks
Eligible Properties
Same as conventional 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 money investment requirement?
At close of escrow, HECM borrowers must provide a financial investment that will be applied to satisfy the difference between the HECM principal limit and the purchase price for the home, in addition to any HECM loan associated fees which aren’t financed or offset by other permitted FHA funding sources. This means that, the funds from the reverse mortgage as well as any funds from the sale of the old home (or from the borrower’s savings) will have to be adequate to buy the new home outright.
The primary difference between principal limit and sales price for the home in state includes any HECM mortgage related costs which aren’t financed or offset by other permitted funding source. Homeowners can provide a larger down payment amount so that they can retain a percentage of HECM funds for future draws.
What are allowable financing sources?
 Homeowner can only make use of their personal money or money obtained from the sale of properties and assets.
 Withdrawals from borrower’s savings or retirement account are satisfactory.
Loan companies are going to be required to validate the origin of all the resources in advance of close of escrow. A verification of deposit, along with the most up-to-date bank statement, may be used to validate savings and checking accounts. When there’s a substantial increase in an account, or the account was opened up fairly recently, the mortgage lender must obtain a credible explanation of the source of those funds. Such documentation will have to be supplied in the FHA case binder. Failure to supply the necessary documentation could lead to a notice of rejection and postponement of endorsement.
What funding resources are ineligible?
 Gifts
 Loan discount points
 Interest rate buy downs
 Closing cost assistance
 Builder incentives
 Home owner contributions or property owner financing
 Credit card advances
 Secured or non-secured loans from another asset (car, home equity)
Homeowners may not obtain a bridge loan (also called “gap financing”) or take part in other interim financing strategies to meet the financial investment requirement or payment of settlement costs necessary to finalize the purchase transaction. This limitation includes subordinate liens, unsecured loans, cash withdrawals from charge cards, seller financing along with other lending commitments that can not be satisfied at closing.
What’s the Role of the Realtor?
Seniors in state must consider a written arrangement – it is best to include contingencies for the sale of the senior’s previous house, the home inspection, etc.
Selecting a Home for Purchase & Obtaining an Home inspection
All seniors are strongly encouraged by HUD to have a home inspection from a licensed qualified home inspector (It’s recommended however it is not required)
 Assesses the soundness: structure, construction, and mechanical systems
 Describes items which ought to be fixed or replaced before the scheduled close of escrow date
 Estimates the remaining practical life of the major 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
 Have to be completed prior to closing by seller
 Include in purchase agreement
 Buyer can not put any money into repairs before they own the house
Writing an offer
 Must state offer contingent on acceptable inspection conducted by qualified inspector
 Borrower might wish attorney to review – will increase costs but will be worth it
 Client may cancel transaction anytime before closing however, this could affect earnest money deposit
Closing Costs for a
Standard Reverse Loan settlement fees plus:
 Recording fees
 Transfer taxes
 Varies from state-to-state
Other things you need to understand about reverse home loan:
 There’s no 3 day right of rescission unlike traditional HECM. The 3-day right of rescission period isn’t applicable to HECM for Purchase transactions. Consequently, all initial advances could be paid on the day 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 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 must 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 individuals who 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 will need to ensure that the home, when utilized as collateral for the HECM, satisfies the following property requirements:
1) It is the borrower’s primary residence;
2) Construction is finished and a certificate of occupancy 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 liens against the home exist.