A reverse mortgage purchase makes it possible for seniors age 62 or older in state to buy a new property with HECM loan proceeds. The key benefit to the senior is the fact that purchase only requires one set of closing costs vs. purchasing a property and obtaining a reverse mortgage thereafter, which will incur two complete sets of closing costs. Developed by the Housing and Economic Recovery Act of 2008, this program became live on January 1, 2009. Eligible seniors must conform to all HECM requirements, all the standard regulations apply in combination with some new regulations.

What are the fundamentals?

Can purchase existing 1 to 4 unit property
House must serve as principal residence
Once HECM purchase is done, no additional liens are allowed (Loan provider in 1st position, HUD in silent 2nd)
Must provide monetary investment at closing from permitted funding source, see below for requirements
Must occupy home within 60 days of close of escrow
Newly constructed properties will need to have certificate of occupancy

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

The main differences concern the properties types that are permitted, the money needed at close of escrow, the assistance of a real estate agent in the mortgage loan process, the recommendation of a skilled professional property inspection, and certain settlement costs.

Check out these other pages of information:

Loomis, Rocklin, Hidden Valley, Granite Bay, Lincoln

Eligible Properties

Same as regular HECM mortgages

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

What is the money investment requirement?

At close of escrow, HECM borrowers will need to supply a monetary investment which will be applied to fulfill the difference between the HECM principal limit and the purchase price for the home, along with any HECM loan related fees which aren’t financed or offset by other allowable FHA funding sources. This means that, the funds from the reverse mortgage and any money from the sale of the old home (or from the consumer’s savings account) must be sufficient to purchase the new home outright.

The difference between principal limit and sales price for the home in state includes any HECM mortgage loan related fees which aren’t financed or offset by other permitted funding source. Homeowners can provide a larger investment amount in order to keep a percentage of HECM funds for future draws.

What are permitted investment sources?

Homeowner may only use their own capital or funds obtained from selling properties and assets.
Withdrawals from consumer’s savings or pension account are generally acceptable.

Financial institutions will be required to verify the original source of all the funds before close of escrow. A verification of deposit, together with the most current 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 recently, the financial institution will have to obtain a valid justification of the source of those funds. This kind of documentation must be made available in the FHA case binder. Failure to produce the necessary documents could lead to a notice of denial and delay of endorsement.

What funding sources are ineligible?

Gifts
Loan discount points
Interest rate buy downs
Closing 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)

Homeowners may not obtain a bridge loan (often known as “gap financing”) or engage in other temporary financing techniques to meet the monetary investment obligation or payment of settlement costs needed to complete the purchase transaction. This restriction may include subordinate liens, unsecured loans, cash withdrawals from credit cards, seller financing along with other lending commitments that can not be satisfied at closing.

What is the Purpose of the Realtor?

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

Deciding on a Property for Purchase & Getting an Inspection

All seniors are strongly encouraged by HUD to get a home inspection from a licensed qualified home inspector (This is recommended however it is not mandatory)

Evaluates the physical condition: structure, construction, and mechanical systems
Describes issues that 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 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’t put any money into repairs before they own the property

Writing an offer

Must state offer contingent on acceptable inspection done by qualified inspector
Borrower might want attorney to review – will increase expenses but may be worth it
Client may cancel transaction any time before closing however, this may affect earnest money deposit

Settlement Fees for a

Standard Reverse Home Loan settlement fees plus:

Recording fees
Transfer taxes
Varies from state-to-state

Other things you need to understand about reverse mortgage specialist 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. Consequently, all initial advances can be paid at the time of closing by the escrow officer. However, FHA encourages loan companies to seek their counsel’s opinion to ensure compliance with Federal or state laws.
Seller concessions 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 will 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 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 must make sure the home, when used as collateral for the HECM, satisfies the following property requirements:

1) It’s the borrower’s principal residence;

2) Construction is complete and a occupancy certificate or something similar was issued;

3) Any construction mortgage 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, during closing, no liens against the home exist.