January 1st, 2009 HUD introduced the HECM for purchase program for seniors.
What is a HECM purchase loan?
HECM reverse mortgage loans can be used to purchase a primary residence if the following criteria is met:
* The purchased home will be primary residence
* The purchased home will be occupied within 60 days of closing
* No mortgage loan other than the HECM can be used to buy the purchased home
* The difference between the purchase price of the home and the HECM proceeds must be paid in cash or from the sale of an existing home
HUD’s formal definition of the program, from the HUD Mortgagee Letter on October 10, 2008, is:
The HECM for Purchase is a real estate purchase where title to the property is transferred to the HECM mortgagor, which the mortgagor will occupy as a principal residence, and, at the time of closing, the HECM first and second liens will be the only liens against the property. HECM mortgagors must occupy the property within 60 days from the date of closing. Lenders are required to ensure all outstanding or unpaid obligations incurred by the prospective mortgagor, in connection with the HECM transaction, are satisfied at closing.
* If the buyer is using cash (instead of the sale of your existing home) to make up the difference, that cash must be “seasoned” for 60 days.
* Cash from a gift is not acceptable.
* To prove that the homeowner has “eligible funds” for the closing, any of the following documents can be provided:
o Letter of Verification of Deposit from the bank
o Proof of liquidation of retirement assets
o Deed of sale
o HUD1 home sale statement
The property must be the primary residence and may be:
* 1-4 Units
* Fully completed (with certificate of occupancy or equivalent)
* Land contracts are acceptable
Ineligible property types include:
* Homes without a Certificate of Occupancy or its equivalent
* Boarding houses
* Bed and breakfast establishments
* Existing manufactured homes built before June 15, 1976
* Existing manufactured homes built after June 15, 1976 that fail to conform to the manufactured home construction safety standards or lack a permanent foundation
What if the home needs repairing?
Most repairs aren’t critical but major ones have to be taken care of before the transaction can close:
* Critical health and safety and structural integrity issues must be repaired
* Repairs must be completed prior to closing by the seller
* The buyer can not pay for any repairs before they own the home
* The repairs must be included in the purchase agreement
With a HECM for Purchase, all of the normal costs associated with selling and buying property apply as well as the normal reverse mortgage fees.