Purchasing a Home With a Reverse Mortgage
The HECM (Property Equity Conversion Mortgage, also known as “Heck-um”) for the purchase program is a great option for borrowers age 62 and over who want to acquire a home. We want to show you how you can be more successful. There are several peculiarities to the program that, if you are aware of them and deal with them right away, you can close most HECM for purchase loans faster than conventional loans.
Reverse Mortgage Purchases are FHA Loans
First of all, because the loan is FHA-insured, certain HUD standards must be fulfilled. Knowing this up front enables you and your lender to examine the transaction and decide whether the specifics fall within the boundaries of the program. The deal has to be on a “Arm’s Length” basis. In other words, there must be no connection of any kind between the two parties selling. Your purchase would not be eligible if it involved family members.
Before the lender can even send out a loan application, HUD mandates that if the home is new construction or has recently undergone a significant remodel, the Certificate of Occupancy must have been granted.
This is crucial for new construction as the builder frequently wants the financing in place so that the closing may happen as soon as the home is finished. Regrettably, the reverse mortgage procedure cannot start until the Certificate of Completion has been issued and the lender has obtained a copy. HUD will permit recently sold properties if the property was a HUD “repo,” but they won’t permit property flipping on reverse mortgage acquisitions in any other circumstance.
Before an offer is made, all parties must be aware that the property would not qualify for a reverse mortgage acquisition if it had just been sold and was currently being resold.
Down Payment for Reverse Mortgage Loans
The source of every dollar required for the down payment must be thoroughly verified, just like it would be for any other FHA loan. This means that if money have been moved, their source must also have a 3-month history. All funds must comply with this requirement.
Obviously, the settlement statement and the proof of the monies would be sufficient if the money came from the sale of another piece of property. It is therefore advised to advise your consumers to refrain from moving their money about in their accounts where it is now located because doing so makes verification more challenging.
It is acceptable to accept a gift of money from a close relative, but this gift will also be subject to the same verification procedures, including proof of the transfer of the money. The needed gift letter, which declares that the money is a gift and does not need to be repaid, is the same as for any other loan (not a loan).
Reverse Mortgage Purchase Underwriting
When it comes to reverse mortgages, closing and title services are slightly more significant than they are with regular forward loans. For instance, a lender cannot even release a loan application until they can disclose all closing costs, and once they have done so, those costs cannot be modified.
The recording fees and all other fees are known to service providers with experience in reverse mortgages, and they can communicate the fees to the lender in a matter of minutes or hours. Only at the time of application can the predicted rate, which fixes the amount the borrower will receive, be locked.
The amount the borrowers can get on the reverse mortgage may fluctuate by tens of thousands of dollars if interest rates change in the interim if your service providers are unaware of the necessity to deliver these statistics and it takes them 5 to 7 days to supply the figures.
It’s critical to confirm that closing service providers understand the possible impact they may have on borrowers and are able to deliver on their end by appropriately giving their costs when required. The reverse mortgage system does not perform an automated approval that you may send to sellers, in contrast to a FNMA DU approval. But don’t lose hope—this is not all unfavorable!
A FNMA DU approval is only as reliable as the input provided by the person at the keyboard and is by no means a guarantee that the loan will be approved once it has been sent to underwriting.
The only unknown is the property itself because the HECM Purchase Reverse borrower can provide the lender with copies of their bank statements to support their down payment, their identification so that all HUD checks can be done, and an authorization so that credit can be pulled beforehand (which is the same with any transaction). We are able to provide you with a letter that will inform potential sellers that we have taken these actions.
Reverse Mortgage Property Requirements
If the appraiser identifies any repairs as necessary, they must be finished before the escrow closes. This means that “as is” sales may not be the best option for HECM for Purchase borrowers depending on the reasons for offering it this way. It’s usually preferable to live in a single-family detached home in a neighborhood where there are numerous recent sales in the area that support your valuation.
Regardless of how highly prepared the borrower is, some homes will not be accepted to HUD due to specific property restrictions. Before we can submit a loan application, condominiums must be included on HUD’s list of approved projects. However, many projects are not eligible for HUD approval.
Value of a Property for Reverse Mortgage Purchase
Properties that need a lot of modifications could be problematic because HUD is particularly hostile to unusual properties. You might own a house with two bedrooms and one bathroom, but every other house for sale nearby has three bedrooms and three bathrooms. A HECM for Purchase loan can be closed as quickly as most conventional loans if you are aware of those concerns in advance. Send us a message right away to learn more.