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 went into effect 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.
At closing, HECM borrowers must provide a monetary investment that 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. 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.
All seniors are strongly encouraged by HUD to get a home inspection from a licensed professional home inspector (This is suggested but not required)
Copyright © 2024 EstaR Mortgage™ a DBA of Mutzig Management, Inc NMLS#1547521. Christopher A. Freck NNMLS#241125, licensed by the California Bureau of Real Estate, BRE License #1454795, State of Oregon Division of Financial Regulation Mortgage Lending License & Washington State Dept of Financial Institutions, NMLS#241125. Mutzig Management, Inc. Licensed by the California Bureau of Real Estate, BRE License #2020370, State of Oregon Division of Financial Regulation Mortgage Lending License ML-5741 & Washington State Dept of Financial Institutions MB-1547521, NMLS#1547521.