What is a HECM for Purchase?
A HECM for Purchase or Reverse Mortgage for Purchase allows individuals who are 62 and older the ability to purchase a primary residence using their qualified funds as down payment and the balance of the purchase from loan proceeds of the government-insured HECM (Home Equity Conversion Mortgage). All of this is done with one set of closing costs in the transaction and eliminates the need for any further monthly mortgage payments for the buyer.
What types of property can I purchase?
You have many different residential home choices from:
• Single Family Residence including New Construction
• 2 – 4 Units which allow you to occupy one and rent out the other units
• HUD Approved Condos
• Manufactured homes built after June 15, 1976 that conform to the manufactured home construction safety standards with a permanent foundation
What are the eligibility requirements to qualify?
Here are the basic items that need to be met to obtain the HECM for Purchase:
• Homeowners must be 62 or older
• Primary owner occupied residences only
• Must occupy property within 60 days of closing
• Purchased home must meet HUD property standards
• Down payment must be from qualified funds (no borrowed funds)
• Must complete HUD-approved, 3rd party counseling session
How do I complete the mandatory counseling that is needed?
FHA requires each homeowner to complete a counseling session with HUD approved independent third-party counseling agency either in person or over the phone. The session usually takes anywhere from 60 – 90 minutes. It is a borrower paid expense typically up to $150.00. I can provide you with a list of approved counseling agencies. The counseling serves as a safeguard to be certain that all borrowers fully understand the HECM for Purchase reverse mortgage program. The HECM counselor will review options, answer questions, and be an impartial third party to help advise prospective reverse mortgage borrowers. After this session a Counseling Certificate will be issued showing completion. This must be provided to me at time of application as it is part of the initial loan package.
What are some of the benefits of the HECM for Purchase?
The Reverse Mortgage for Purchase Program can offer:
• Relieves borrowers from paying all cash in order not to have a monthly mortgage payment. The unused down payment can be used as a reserve of funds in retirement for maintaining their lifestyle and other costs.
• The opportunity of having no monthly mortgage payments provides more peace of mind and cash flow while typically living on a fixed income
• Presently, there are no debt to income ratios (just a minimum monthly residual calculation) or credit score qualifications, however there are minimum financial assessment requirements that must be met for the loan.
• Opportunity to get more house for your money if you are looking at a retirement dream home, moving closer to family/grandkids, a more suitable home in an age related amenity oriented community, two story to one story, etc.
• Borrowers have property vested in their names and retain full ownership of home throughout their lifetime.
• No prepayment penalty and partial payments (optional) are accepted
• FHA insured, non-recourse loan. You or your heirs can never owe more than the value of the home even if the loan balance is higher
• Upon final sale of home, all remaining equity goes to you or your estate
How much of a down payment is needed for the HECM for Purchase?
There are several items that go into figuring the down payment which are:
• The final purchase price of the home as agreed by all parties and accepted by underwriting based on an appraisal
• The current expected interest rate of the product option selected
• Age of the youngest homeowner based on the closing date
• Loan fees and charges incorporated into transaction
• Generally, the older the homeowner, the less down payment required with an estimated range of 25% – 50%.
• Call 1-888-323-3555 for an estimate of your down payment
What are the ongoing costs and responsibilities as a homeowner?
Of course, even with no monthly mortgage payments and being able to purchase your home with only about a 50% down payment, this is not a free program as there are costs to the loan and charges you must pay as the homeowner:
• Deferred interest on the loan balance is accrued based on either the fixed rate or variable rate option that you have selected.
• FHA mortgage insurance at a rate of 1.25% annually but shown monthly on your statement is accrued on the loan balance.
• Payment of property taxes, homeowners insurance, flood insurance (if applicable), and any HOA fees are required to be kept current
• Maintain the property in good condition
• Occupy the home within 60 days of closing as your primary residence
Is the purchase contract different with the Reverse for Purchase?
It is the same contract that is used throughout California on residential purchases for other types of loans however the way it should be written up is much different in several ways.
• First of all, it is extremely important that your Realtor speaks with me prior to submitting an offer.
• The purchase contract cannot contain any language about concessions, incentives, or builder/seller paid closing costs. In addition, there cannot be any exchange of personal property or seller rent back.
• Closing costs by seller are limited so the purchase contract needs to be written properly to cover the differences.
• All required repairs must be completed by the seller prior to closing. These are your standard health and safety conditions along with termite and any home inspection report items deemed significant by underwriter.
• Additional FHA forms need to be included at the time of offer.
Who actually owns the home after a Reverse Mortgage for Purchase?
The homeowner does as this is many times a misconception with borrowers. All we are doing is providing a very special and unique kind of loan financing that does not require monthly mortgage payments. The homeowner is vested on title as the owner whether it is done individually, jointly, or in trust. Trusts need to be reviewed and approved by underwriting and the title company.
What happens to the home when it is no longer occupied by the owner?
Occupancy of the home is critical and when that time occurs due to health reasons, moving, or the death of the last borrower then the reverse mortgage needs to be paid in full.
• As stated above, the home is vested in the borrowers name in some form. That being the case, the house will be left to the heirs and will be settled the exact same way as any other estate with a home involved.
• The heirs can keep the home and refinance the loan or sell the property to payoff the reverse mortgage.
• If the sale price exceeds the mortgage balance then the difference will go to the estate. If the sale price is less than the mortgage balance, the estate will NOT be responsible for that deficit. The FHA HECM is known as a non-recourse loan and provides that protection.
For all other questions and I know you have more, call me toll free at 1-888-323-3555 or directly on my cell phone at 760-458-2755.