What is HECM for Purchase?
HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.
What is the purpose of the program?
The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.
What if the HUD-1 Lines 303 and 603 do not match the figures from the Loan Amortization Schedule?
The HECM for Purchase closing will use many of the acceptable practices used for insuring forward mortgages. Because the HUD-1 Settlement Statement is the final statement, it will reflect final adjustments (e.g., adjustments for fuel, electricity, etc.) not captured on the Reverse Mortgage Loan Amortization Schedule.
Is the fixed interest rate eligible in a HECM for purchase loan?
Should the lender obtain a credit report for non-borrowing spouses?
Yes. Although one spouse will become the HECM mortgagor, the lender must obtain the credit report for a review of financial obligations, monetary judgments and liens that could jeopardize the HECM lien status/clear and marketable title.
What documentation should be used to document the 60-day physical requirement to occupy the property after closing?
The HECM security instrument requires the HECM mortgagor to establish a legitimate principal residence in the home. Lenders are encouraged to ensure the HECM mortgagor lives in the home prior to submitting the case binder for endorsement. Lenders may, but are not required to, obtain a letter from the HECM mortgagor stating he/she lives in the home.
Are lenders required to submit form HUD 92541, Building Certification of Plans, Specifications & Site and 10-year warranties in the case binder?
No. Newly constructed properties must be 100% complete at the time of inspection and initial application.
Under what conditions may a senior cancel the purchase transaction?
The senior may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior decides to cancel the transaction, he/she must notify all parties in writing. Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.
Are the mortgage proceeds paid to the seller through escrow?
The title company (settlement agent) is responsible for disbursing funds in accordance with state law.
Is this a HECM for purchase or a traditional HECM?
A senior purchases a principal residence using 100% seller financing, signs a HECM loan application the next day or shortly thereafter and meets all eligibility criteria for obtaining a HECM. Does the Federal Housing Administration (FHA) consider this transaction to be a traditional HECM or a HECM for purchase transaction?
This scenario describes a traditional HECM. Consistent with existing policy guidance, the HECM loan proceeds will satisfy a recorded lien that was created from the seller financing. Lenders may request a copy of the executed HUD-1 and warranty deed, or its equivalent, to ensure transfer of title to the prospective HECM mortgagor.
Once a principal residence has been purchased using HECM loan proceeds, can the property serve as collateral for another secured loan?
Yes, only after the mortgage insurance certificate has been issued. Lenders are responsible for ensuring additional secured liens are subordinate to the HECM first and second liens. Such financing may not occur concurrently with the HECM closing.