A reverse mortgage purchase makes it possible 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 purchase only requires one set of closing costs vs. buying a home and obtaining a reverse mortgage after, which would have two complete sets of closing costs. Developed by the Housing and Economic Recovery Act of 2008, the program became live on January 1, 2009. Eligible seniors must abide by all HECM requirements, all of the basic regulations apply in combination with a few new guidelines.
What are the basics?
Can purchase existing 1 to 4 unit properties
House must serve as principal residence
Once HECM purchase is completed, no additional liens are allowed (Loan provider in 1st position, HUD in silent 2nd)
Must supply monetary investment at closing from allowed funding source, see below for information and facts
Must reside in house within 60 days of closing
Newly built homes must have certificate of occupancy
There are some differences between a HECM for purchase and a classic HECM for seniors in state.
The main differences concern the properties types that are allowed, the funds required at closing, the assistance of a realtor in the home loan process, the recommendation of a certified home inspection, and certain closing costs.
Check out these other pages of information:
Gold River, Nimbus, Orangevale, Carmichael, Alder Creek
Permitted Properties
Identical to traditional HECM mortgages
Ineligible Properties
Cooperative units
Manufactured housing built before 1976 and without permanent foundation
Bed and breakfast properties, boarding houses
What is the financial investment requirement?
At closing, HECM borrowers will need to supply a monetary investment which is applied to satisfy the difference between the HECM principal limit and the purchase price for the house, in addition to any HECM loan connected expenses which aren’t financed or offset by other allowable FHA funding sources. This means that, the funds from the reverse mortgage and any cash from the sale of the old house (or from the homeowner’s savings) has to be enough to buy the new house outright.
The main difference between principal limit and sales price for the house in state includes any HECM home loan related costs which aren’t 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 allowed financing sources?
Borrower can only make use of their personal capital or cash obtained from selling properties and assets.
Withdrawals from homeowner’s personal savings or pension account are acceptable.
Loan companies are going to be required to validate the origin of all the money before closing. A verification of deposit, in addition to the latest bank statement, could be used to validate savings and checking accounts. Whether there is a considerable increase in an account, or the account was opened up recently, the financial institution will need to obtain a valid explanation of the source of those funds. This type of paperwork has to be presented in the FHA case binder. Failure to supply the required documentation may lead to a notice of rejection and delay of endorsement.
Which funding sources are ineligible?
Gifts
Loan discount points
Rate buy downs
Settlement cost assistance
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 obtain a bridge loan (also referred to as “gap financing”) or take part in other temporary financing techniques to satisfy the monetary investment obligation or payment of closing costs necessary to finalize the purchase transaction. This limitation 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 Purpose of the Realtor?
Seniors in state should consider a written agreement – it is best to include contingencies for the sale of the senior’s previous home, the property inspection, etc.
Choosing a Home for Purchase & Getting an Home inspection
All seniors are strongly encouraged by HUD to have a home inspection from a licensed skilled professional home inspector (This is suggested but is not required)
Assesses the soundness: structure, construction, and mechanical systems
Identifies items which need to be repaired or replaced prior to the scheduled closing date
Estimates the remaining useful life span of the major systems, equipment, structure, and finishes
Buyers can be at the inspection to ask questions on the condition and maintenance
Required Repairs
Health and safety or architectural integrity issues
Must 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 conditional on acceptable inspection conducted by qualified home inspector
Borrower might want attorney to review – raises fees but may be worth it
Client can cancel transaction any time before closing however this could affect earnest money deposit
Settlement Fees for a
Standard Reverse Loan fees plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you need to understand about local reverse mortgage lender:
There is no 3 day right of rescission unlike traditional HECM. The 3-day right of rescission period is not applicable to HECM for Purchase transactions. Therefore, all initial advances may be paid on the day of closing by the escrow company. However, FHA encourages loan companies to get their counsel’s opinion to assure compliance with Federal or state laws.
Seller concessions aren’t applicable to reverse mortgages.
Existing HECM borrowers who participate in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and lenders 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 people 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 need to make sure the house, 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 CO or its equivalent has been issued;
3) Any construction home loan financing for the house, 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, at the time of closing, no other liens against the house exist.