More Information on Reverse Purchases

Much has been speculated about how this program works, in many ways it is just like the refinance version but there are specific differences. It is designed to allow seniors to purchase and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. It also allows seniors to relocate to be closer to family or to downsize to meet their physical needs.

The senior can acquire a fixed rate as well as the ARM. There are some items that need to be addressed:

1. If there is a non-borrowing spouse, you must obtain a credit report to review anything that might affect the house
2. Borrowers must occupy the house in 60 days or less
3. Plans and specs are not required and house must be 100% complete
3. Purchase may be cancelled at any time up to closing
4. The title company is responsible for disbursing funds
5. You cannot take application for unfinished construction
6. Escrow accounts are available
7. Condition of home must meet FHA guidelines

One major difference in this new program is that they will allow a 2nd lien with these stipulations. It must be after the MIC has been issued and lenders are required to ensure that additional secured liens are subordinate to the HECM first and second liens. Such financing cannot occur concurrently with the HECM closing.

A HECM can be used to pay off outstanding obligations associated with a land contract if 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 100th birthday of the youngest borrower.

Ineligible property types are:
Coops
New construction with no Cert. Of Occupancy
Boarding houses
B&B establishments
Manufactured houses before 1976
Manufactured houses that fail to conform to the Manufactured Home Construction Safety Standards as evidenced by data plate and HUD certification label or lack a permanent foundation per HUD guidelines

The Amendatory Clause is required for all HECM transactions. An appraisal is also required.

If you suspect the senior is involved in a flipping scam, we must notify HUD.

Gifts are not an acceptable source of funding. The senior must use only their own money, money obtained from the sale of assets. The seller cannot contribute any funds.

The maximum claim amount and principal limit, for HECM transactions only, will be the lesser of the appraised value, sales price or FHA mortgage limit for a one family residence. The principal limit is determined by multiplying the Maximum claim amount by the principal limit factor corresponding to the age of the youngest mortgagor and the expected interest rate. This replaces instructions found in Mortgagee Letter 2008-33.

If the sale of present home occurs at the same time as the HECM purchase a copy of the previous home’s HUD1, the sales contract executed by all parties and cashier’s check can verify the funding source.

The new Mortgagee Letter should be issued in a few days.