A reverse mortgage purchase makes it possible for seniors age 62 or older in state to purchase a new house with HECM loan proceeds. The key benefit to the senior is the fact that transaction only involves one set of closing costs vs. buying a house and getting a reverse mortgage thereafter, which will have two complete sets of closing costs. Developed by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Qualified seniors must adhere to all HECM standards, each of the standard rules apply in combination with a few new regulations.

What are the basics?

Can purchase existing 1 to 4 unit properties
Home will need to serve as principal residence
Once HECM purchase is complete, no additional liens are permitted (Loan provider in 1st position, HUD in silent 2nd)
Will have to provide financial investment at closing from permitted funding source, see below for details
Need to occupy home within Sixty days of close of escrow
Newly built homes will need to have certificate of occupancy

There are several variations between a HECM for purchase and a classic HECM for seniors in state.

The major distinctions concern the properties types that are eligible, the funds needed at close of escrow, the involvement of a realtor in the mortgage process, the recommendation of a qualified professional house inspection, and certain settlement costs.

Check out these other pages of information:

Penryn, Rocklin, Hidden Valley, Granite Bay, Whitney

Eligible Properties

Identical to conventional HECM loans

Ineligible Properties
Cooperative units
Manufactured homes built before 1976 and without permanent foundation
Bed and breakfast properties, boarding houses

What is the financial investment requirement?

At close of escrow, HECM borrowers will have to provide a financial investment which 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 connected fees which are not financed or offset by other allowed FHA funding sources. This means that, the funds from the reverse mortgage as well as any money from the sale of the old home (or from the borrower’s personal 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 also includes any HECM mortgage related costs which are not financed or offset by other permitted funding source. Consumers can provide a larger down payment amount in order to keep a portion of HECM funds for future draws.

What are permitted investment resources?

Consumer can only make use of their own money or money obtained from the sale of assets.
Withdrawals from borrower’s savings or retirement account are satisfactory.

Financial institutions are going to be required to verify the original source of all the money in advance of close of escrow. A verification of deposit, along with the most recent bank statement, could be used to verify savings and checking accounts. When there is a substantial increase in an account, or the account was opened recently, the lending company will have to get a valid explanation of the source of those funds. Such documentation will have to be supplied in the FHA case binder. Failure to produce the required documents could lead to a notice of rejection and postponement of endorsement.

Which funding resources are ineligible?

Gifts
Loan discount points
Rate buy downs
Closing cost assistance
Home builder incentives
Home owner contributions or home owner financing
Charge card advances
Secured or non-secured loans from another asset (car, home equity)

Consumers may not get a bridge loan (generally known as “gap financing”) or participate in other interim financing strategies to meet the financial investment obligation or payment of settlement costs needed to close the purchase transaction. This restriction includes subordinate liens, personal loan, cash withdrawals from credit cards, seller financing and any other lending obligations that cannot be satisfied at closing.

What is the Role of the Real Estate Agent?

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

Deciding on a Property for Purchase & Getting an Home inspection

All seniors are strongly encouraged by HUD to have a home inspection from a licensed qualified professional home inspector (This is advised but is not required)

Evaluates the soundness: structure, construction, and mechanical systems
Identifies items which ought to be repaired or replaced prior to the scheduled close of escrow date
Estimates the remaining practical life of the main systems, equipment, structure, and finishes
Buyers can be at the inspection to ask questions about the condition and maintenance

Required Repairs

Health and safety or structural integrity issues
Will have to be finished prior to closing by seller
Include in purchase agreement
Buyer can’t put any cash into repairs before they own the house

Writing an offer

Must state offer conditional on satisfactory inspection done by qualified inspector
Borrower might wish attorney to review – raises fees but can be worth it
Client can cancel transaction anytime before closing but this could affect earnest money deposit

Settlement Costs for a

Standard Home Equity Conversion Mortgage fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you should know about reverse mortgage near me in California:

There is 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. Therefore, all initial advances can be paid on the day of closing by the escrow officer. However, FHA encourages loan companies to get their counsel’s opinion to ensure compliance with Federal or state laws.
Seller concessions aren’t applicable to reverse mortgages.
Existing HECM borrowers who get involved in a HECM for Purchase transaction are ineligible for a decrease in the upfront MIP and loan companies will have to enter the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies that have been authorised to provide reverse mortgage counseling, must counsel those that anticipate using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Financial institutions need to 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 CO or its equivalent 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, at the time of closing, no liens against the home exist.