HECM for Purchase: Frequently Asked Questions

PROPERTY

What property types are eligible?

Existing one-to-four unit properties where construction has been completed and the property is habitable as evidenced by local jurisdiction issuance of certificate of occupancy or its equivalent.

Can a HECM for 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.

Can a lender take application on a property that is under construction and not habitable?

No. The lender may only take application once the Certificate of Occupancy or its equivalent has been issued.

What property types are ineligible?

  • Cooperative units
  • Newly constructed residences where a Certificate of Occupancy 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; and
  • 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 or homes that are installed or were occupied previously at another site or location.

Are set asides for property charges allowed (i.e., ground rent, tax, insurance, Homeowner Association fees, etc.)?

Yes. Mortgagors will continue to have the option of electing to have the lender withhold funds from their monthly payments or by charging such funds to the line of credit. <top>

Are set asides for repairs allowed?

To be eligible for federal insurance, the property must meet FHA minimum property requirements. All repairs to correct major property deficiencies that threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property must be completed by the seller prior to closing. Appraisers must complete the appraisal report as “Subject To” the completion of these repairs.

Major Property Deficiency Examples:

  • No running water
  • Leaking roof
  • No primary heating source
  • Inadequate electrical system (including lighting)
  • Inoperable doors and windows (inhibited ingress and egress)
  • State or local code violations

Is the Amendatory Clause required?

Yes. An appraisal is required for all HECM transactions, including purchase transactions. The execution of the Amendatory Clause does not negate federal and state mandates on providing a copy of the appraisal to the consumer.

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.

If the lender suspects the senior has become involved in a property flipping scam, who should be contacted?

If a lender suspects a senior has become a victim to a property flipping scam, contact the Processing and Underwriting Division of the local¬†HOC. Complaints may also be reported to HUD’s Inspector General Hotline at: HUD Office of Inspector General Hotline, GFI, 451 7th Street, SW Washington, DC 20410 Phone: 1 (800) 347-3735 or TDD: (202) 708-2451.

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