A reverse mortgage purchase allows seniors age 62 or older to buy a new home with HECM loan proceeds. The primary benefit to the senior is that the transaction only involves one set of closing costs versus buying a home and obtaining a reverse mortgage thereafter, which would 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. Qualified seniors must conform to all HECM requirements, all of the basic rules apply in addition to some new rules and regulations.
The major differences concern the property types that are eligible, the cash required at closing, the involvement of a Realtor in the loan process, the recommendation of a professional home inspection, and certain closing costs.
Same as federally-insured reverse mortgages or Home Equity Conversion Mortgage loans.
At closing, HECM borrowers must provide a monetary investment which will be applied to satisfy the difference between the HECM principal limit and the sales price for the property, plus any HECM loan related fees that are not financed or offset by other allowable FHA funding sources. In other words, the proceeds from the reverse mortgage and any funds from the sale of the old property (or from the borrower’s savings) must be enough to purchase the new property outright.
The difference between principal limit and sales price for the property also includes any HECM loan related fees that are not financed or offset by other allowable funding sources. Borrowers may provide larger investment amounts in order to retain a portion of HECM proceeds for future draws.
Lenders will be required to verify the source of all funds prior to closing. A verification of deposit, along with the most recent bank statement, may be used to verify savings and checking accounts. If there is a large increase in an account, or the account was opened recently, the lender must obtain a credible explanation of the source of those funds. Such documentation must be provided in the FHA case binder. Failure to provide the necessary documentation may result in a notice of rejection and delay of endorsement.
Borrowers may not obtain a bridge loan (also known as gap financing) or engage in other interim financing methods to meet the monetary investment requirement or payment of closing costs needed to complete the purchase transaction. This restriction includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitment that cannot be satisfied at closing.
Senior should consider a written agreement – you should include contingencies for the sale of the senior’s previous home, the home inspection, etc.
All seniors are strongly encouraged by HUD to get a home inspection from a licensed professional home inspector (This is suggested but not required)
Standard HECM closing costs plus:
To avoid cases of property flipping, lenders must take steps to ensure that:
If a lender suspects a senior has become a victim to a property flipping scam, the Processing and Underwriting Division of the local HOC should be contacted.
Complaints may be reported to HUD’s Inspector General Hotline at:
HUD Office of Inspector General Hotline, GFI
451 7th Street, SW
Washington, DC 20410
TDD: (202) 708-2451
Imagine selling your large oversize home and buying a new modest home with lower costs and living there in retirement without having to make a mortgage payment. Reverse for Purchase makes that possible.