Recent media and reverse mortgage industry sources continue to report increased loan volume transactions for senior Americans utilizing the HECM for Purchase Program. This volume is largely fueled by continuing efforts and resources by the reverse mortgage industry to educate realtors and consumers regarding the features and benefits of the HECM for Purchase program. Additionally, housing reports of property values appreciating are also adding new loan opportunities for seniors looking to downsize and relocate.
HECM guidelines permit a real estate purchase for eligible senior borrowers. Similar to borrower and property eligibility under the standard HECM refinance program, there are some additional requirements which loan originators should be aware of when presenting this option to potential borrowers or providing program information to real estate agents. Consult the lenders guidelines for more detailed explanation of the following:
►Eligible borrowers must be 62 years of age at the time of application and must occupy the property as their primary residence within 60 days of closing. Borrowers retaining their prior residence or owning other real estate may be subject to additional underwriting requirements.
►Borrowers are responsible for the payment of property taxes, insurance and other fees and assessments.
►FHA prohibits seller contributions (also known as “seller concessions”), including the use of loan discount points, interest rate buy downs, closing cost downpayment assistance, builder incentives, gifts or personal property given by the seller or any other party involved in the transaction. Also prohibited are customary charges that are normally paid on behalf of the borrower by the seller.
►Lenders will require the verification and source of earnest money and all other funds prior to closing. HECM mortgagors must use cash on hand or cash from the sale or liquidation of the mortgagor’s assets for the required monetary investment. The monetary investment requirement can also be met by the use of approved funding sources as defined in HUD Handbook 4155.1 REV-5, section 2-10, with the exception of credit card advances, sweat equity, trade equity and rent credit.
►The seller or any other person or entity that financially benefits from the transaction or any third-party that is reimbursed directly or indirectly is prohibited.
►HECM borrowers may not obtain a bridge loan (“gap financing”) or engage in other interim financing methods to meet the monetary investment requirement.
►The loan principal limit will be calculated based upon the lesser of the final appraised value, the contract sales price or the national maximum claim amount. Loan proceeds will be applied to satisfy the difference between the HECM principal limit and the final sales price for the property plus any HECM loan related fees that are not financed into the loan minus the amount of the earnest deposit.
►Only FHA HECM property types are eligible for FHA insurance under the HECM for Purchase Program. New property construction must be completed and evidenced by issuance of a Certificate of Occupancy (CO) or its equivalent by the appropriate local authority.
►Repairs as indicated in the appraisal report must be completed by the seller prior to loan closing and may not be charged or transferred to the borrower.
►Sales contracts must be complete and include required addendums and exhibits.
►Real estate must be held fee simple only.
RMS provides complete HECM for Purchase training, product availability and resource access through wholesale and correspondent relationships with mortgage professionals. For more information on the HECM for Purchase Pprogram contact RMS at [email protected]
Ralph E. Rosynek Jr. is senior vice president, national production manager for RMS, Reverse Mortgage Solutions Inc. He may be reached by phone at (281) 404-7970 or e-mail [email protected]