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 principal 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 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 adhere to all HECM requirements, each of the standard regulations apply along with a few new regulations.
A few of the basics?
Can buy existing 1 to 4 unit property
Home will need to serve as primary residence
Once HECM purchase is finished, no additional liens are allowed (Financial institution in 1st position, HUD in silent 2nd)
Will need to provide financial investment at closing from allowable funding source, see below for specifics
Will need to live in home within 60 days of closing
Newly built homes will need to have certificate of occupancy
There are a few differences between a HECM for purchase and a classic HECM for seniors in state.
The key distinctions concern the properties types that are eligible, the funds required at closing, the assistance of a real estate agent in the home loan process, the recommendation of a professional house inspection, and certain closing costs.
Check out these other pages of information:
Whitney, Penryn, Loomis, Rocklin, Roseville
Eligible Properties
Identical to standard HECM mortgages
Ineligible Properties
Cooperative units
Manufactured housing constructed before 1976 and without permanent foundation
Bed and breakfast properties, boarding houses
What’s the monetary investment requirement?
At closing, HECM borrowers will have to 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 connected fees which aren’t financed or offset by other permitted FHA funding sources. This means that, the proceeds from the reverse mortgage as well as any cash from the sale of the old home (or from the consumer’s savings account) needs to be sufficient to purchase the new home outright.
The primary difference between principal limit and sales price for the home in state also includes any HECM home loan related fees which aren’t financed or offset by other permitted funding source. Consumers could provide a larger investment amount as a way to maintain a portion of HECM proceeds for future draws.
What are allowable financing options?
Consumer may only make use of their own money or cash obtained from selling assets.
Withdrawals from consumer’s personal savings or pension account are generally acceptable.
Mortgage companies are going to be required to confirm the source of all the resources in advance of closing. A verification of deposit, along with the most up-to-date bank statement, may be used to confirm savings and checking accounts. When there is a substantial increase in an account, or the account was opened up fairly recently, the lending company will need to obtain a valid clarification of the source of those funds. This sort of documentation needs to be provided in the FHA case binder. Failure to provide the required documentation may lead to a notice of denial and delay of endorsement.
What funding resources are ineligible?
Gifts
Loan discount points
Mortgage rate buy downs
Settlement cost assistance
Builder incentives
Seller contributions or seller financing
Credit card advances
Secured or non-secured loans from another asset (car, home equity)
Consumers may not obtain a bridge loan (also known as “gap financing”) or participate in other temporary financing techniques to meet the financial investment obligation or payment of closing 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 obligations that cannot be satisfied at closing.
What’s the Job of the Real Estate Broker?
Seniors in state must consider a written contract – you should include contingencies for the sale of the senior’s previous house, the home inspection, etc.
Deciding on a Home for Purchase & Obtaining an Inspection
All seniors are strongly encouraged by HUD to have a home inspection from a licensed professional home inspector (It is advised however it is not required)
Examines the soundness: structure, construction, and mechanical systems
Determines items which should be repaired or replaced before the scheduled closing date
Estimates the remaining practical life span 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
Will have to be completed prior to closing by seller
Include in purchase agreement
Buyer can not put any cash into repairs before they own the house
Writing an offer
Must state offer conditional on satisfactory inspection done by qualified home inspector
Borrower may want attorney to review – raises fees but will be worth it
Client may cancel transaction anytime prior to closing however, this may affect earnest money deposit
Closing Costs for a
Standard Reverse Home Loan settlement fees plus:
Recording fees
Transfer taxes
Varies from state-to-state
Other things you should consider about local reverse mortgage specialist:
There is no three day right of rescission unlike traditional HECM. The three-day right of rescission period isn’t applicable to HECM for Purchase transactions. Consequently, all initial advances could be disbursed on the day of closing by the escrow company. 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 take part in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and mortgage lenders will have to enter in the transaction into FHA Connection as a new HECM.
HUD-approved housing counseling agencies which have been approved to provide reverse mortgage counseling, must counsel those who anticipate making use of the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.
Mortgage companies will need to be sure the home, when used as collateral for the HECM, satisfies the following property requirements:
1) It is the borrower’s primary residence;
2) Construction is complete and a CO or something similar was issued;
3) Any construction home loan 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 other liens against the home exist.