The FAQs on this page were written for lenders
and housing counselors, however, seniors may find them helpful for
an overview
of the program.
General
Overview
Processing
Property
Funding
Miscellaneous
GENERAL
OVERVIEW
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.
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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. <top>
PROCESSING
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?
Yes.
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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. <top>
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. <top>
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. <top>
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. <top>
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. <top>
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. <top>
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. <top>
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. <top>
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. <top>
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. <top>
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. <top>
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. <top>
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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FUNDING
Are gifts an acceptable source of funding?
Prospective mortgagors may use their own money or money obtained
from the sale of assets. 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 the following funding sources which may not
be used:
- Sweat Equity
- Trade Equity
- Rent Credit
- Cash or its equivalent, in whole or in part, from the following
parties, before, during or after loan closing:
- The seller or any other person or entity that financially benefits
from the transactions, or
- Any third party or entity that is reimbursed, directly or indirectly,
by any of the parties described in the previous bullet. <top>
What would be an "allowable FHA funding source"
for gap financing of the equity portion?
A withdrawal from the mortgagor's savings or retirement account
would be an acceptable funding source. <top>
How is the maximum claim amount and principal limit calculated?
For HECM purchase transactions only, the maximum claim amount will
be the least of: 1) the appraised value; 2) sale price; or 3) 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,
the expected interest rate and the initial MIP option that the borrower
selects. <top>
Can prospective mortgagors apply credit card
cash advances towards the required monetary investment or closing
costs?
No. This would be a violation of 24 Code of Federal Regulations
206.32(a), which requires all outstanding obligations connected
to the HECM transaction, purchase or otherwise, to be satisfied
prior to or on the date of closing. <top>
Are seller concessions allowed?
No. Seller concessions are applicable to forward mortgages only.<top>
Is seller financing permitted?
No. <top>
Is the Real Estate Certification required?
Yes. <top>
When purchasing a new principal residence,
if the HECM proceeds do not cover the sales price, can part or all
of the property's indebtedness be subordinated behind the first
and second HECM liens if the existing lien holder is willing to
execute a subordinate agreement?
No. All existing liens must be satisfied at the HECM closing.<top>
If the source of funds comes from the sale of the homeowner's
principal residence or other owned property, and the sale is occurring
the same day as the closing on the HECM, can a copy of the executed
HUD-1 and cashier's or certified check, evidencing the sale, be
used to verify the funding source?
Yes. In addition to the HUD-1, a copy of the sales contract executed
by all parties and a copy of the cashier's or certified check bearing
the name of the seller can be used to verify the funding source.
<top>
Can prospective mortgagors obtain a secured
or non-secured loan from another asset (i.e., car, home equity line
of credit, or investment property or second home) to satisfy the
monetary investment or closing costs?
No. Consistent with existing policy, bridge loans and other interim
financing methods associated with HECM transactions are prohibited,
unless the unpaid or outstanding obligation can be satisfied prior
to or on the day of closing.<top>
In lieu of providing a Verification of Deposit with the most
recent bank statement, what other alternative documentation will
FHA accept? Note: Full Doc vs. Alt Doc-one is a compliment for the
other.
FHA will accept the two most recent, consecutive original bank
statement(s), belonging to the borrower, which covers the most recent
(three-month period) and previous month's balance. Bank statements
that are more than 120 days old prior to the closing date are not
acceptable. <top>
Is the finance transaction of Loan A prohibited in this scenario?
Senior currently owns Home A. Senior wishes to purchase Home B.
Senior borrows money (with Loan A) and uses Home A as collateral
for Loan A, and uses the money from Loan A for a down payment on
Home B. The remainder of the Purchase proceeds for Home B, which
will be the senior's principal residence, comes from a HECM for
Purchase transaction.
Yes the transaction is prohibited. Although Loan A served
as a secured loan tied to Home A, the money was applied toward the
HECM for purchase transaction and would violate 24 CFR 206.32 (a)
which provides that there shall be no outstanding or unpaid obligations
incurred by the HECM mortgagor in connection with the HECM transaction.<top>
MISCELLANEOUS
Can
the HECM mortgagor participate in a rent back/leaseback agreement
with the seller?
No.
When purchasing a new principal residence, the HECM mortgagor has
60 days to occupy the home. Unlike a forward mortgage, there is
an increased risk to FHA when the home is not occupied by the HECM
mortgagor. Prior to closing, the HECM mortgagor and seller should
agree to a date for physical occupancy of the property and the lender
should confirm occupancy prior to their submission of the case binder
to the local HOC for endorsement.<top>
Does FHA have special eligibility requirements
for first-time homebuyers?
No. FHA encourages all first-time homebuyers to meet with a reverse
mortgage counselor that offers pre-purchase counseling to educate
themselves on the responsibilities of becoming a homeowner. Prior
to signing a sales contract, FHA encourages a home inspection of
all properties that will serve as collateral for HECM for purchase
transactions. The inspection serves two purposes, to determine the
magnitude, if any, of repairs and/or rehabilitation the home as
well as helps the buyer to negotiate the purchase price in situation
where a home requires repair or rehabilitation. <top>