RM for Home Purchase
Home Equity Conversion Mortgage
“HECM for Home Purchase”
Frequently Asked Questions
1. What is HECM for Home Purchase?
HECM for Home Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.
2. What is the purpose of the program?
The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.
3. What property types are eligible?
Existing one-to-four unit properties (i.e. duplex) where construction has been completed and the property is habitable (i.e. has a COO - Certificate of Occupancy).
For Condominiums the Condo must be Lender or FHA “Approved” - ask for details.
For homes in a PUD (Planned Unit Development) the Homeowners Association must be no longer be managed by the developer.
4. Can a HECM for Home purchase be used to satisfy outstanding payment obligations associated with a land contract?
Yes, if the property will be used as collateral for the HECM and the mortgage will be held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having the remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.
5. What property types are ineligible?
• Cooperative units
• Newly constructed residence where a Certificate of Occupancy (COO) or its equivalent has not been issued by the appropriate local authority
• Boarding houses
• Bed and breakfast establishments
• Existing manufactured homes built before June 15, 1976
• Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g., data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide.
6. Are gifts an acceptable source of funding?
No. Prospective mortgagors may only use their own money or money obtained from the sale of assets. FHA prohibits the use of loan discount points, interest rate buy downs, closing cost assistance, builder incentives, gifts or personal property given by the seller or any other party.
7. What would be an “allowable FHA funding source” for gap financing of the equity portion?
A withdrawal from the mortgagor’s savings or retirement account would be an acceptable funding source.
Proceeds from the sale of an existing asset such as a former primary home would be an acceptable funding source.
8. Can prospective mortgagors apply credit card cash advances towards the required monetary investment or closing costs?
No. This would be a violation of 24 Code of Federal Regulations 206.32(a), which requires all outstanding obligations connected to the HECM transaction, purchase or otherwise, to be satisfied prior to or on the date of closing.
9. Are seller concessions allowed?
No. Seller concessions are applicable to traditional (“forward”) mortgages only.
10. Is seller financing permitted?
No, HUD does not allow this with a HECM for Home Purchase.
11. When purchasing a new principal residence, if the HECM proceeds do not cover the sales price, can part or all of the property’s indebtedness be subordinated behind the first and second HECM liens if the existing lien holder is willing to execute a subordinate agreement?
No. All existing liens must be satisfied at the HECM closing.
12. Can prospective mortgagors obtain a secured or non-secured loan from another asset (i.e., car, home equity line of credit, or investment property or second home) to satisfy the monetary investment or closing costs?
No. Consistent with existing policy, bridge loans and other interim financing methods associated with HECM transactions are prohibited, unless the unpaid or outstanding obligation can be satisfied prior to or on the day of closing.
13. Under what conditions may a senior cancel the purchase transaction?
The senior may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior decides to cancel the transaction, he/she must notify all parties in writing. Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.
14. Can the HECM mortgage participate in a rent back/leaseback agreement with the seller?
No. When purchasing a new principal residence, the HECM mortgagor has 60 days to occupy the home. Unlike a traditional mortgage, there is an increased risk to FHA when the home is not occupied by the HECM mortgagor. Prior to closing, the HECM mortgagor and seller should agree to a date for physical occupancy of the property and the lender should confirm occupancy prior to their submission of the case binder to the local HOC for endorsement.
15. Are the mortgage proceeds paid to the seller through escrow?
The title company (settlement agent) is responsible for disbursing funds in accordance with State law.
16. Are there special procedures for foreclosure homes that will serve as collateral for a purchase transaction?
No. FHA has sufficient valuation guidelines related to comparable sales and declining markets to address the resale of foreclosed properties. HUD has imposed a standard of accountability to which lenders, sponsor lenders, and loan correspondents will be held is the same as the standard used to impose civil money penalties for program violations, and that standard is one of knowing (actual knowledge) or had reason to know.
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