Are reverse mortgages a good way to buy a house? What is the process?
HECM for purchase is a reverse mortgage that allows seniors age 62 and older to purchase a home using reverse mortgage loan proceeds. For the senior, the primary advantage is that it only involves one set of closing costs, as opposed to buying a home and obtaining a reverse mortgage afterwards, which would require two sets of closing costs. Instituted by the Housing and Economic Recovery Act of 2008, this program was launched on January 1, 2009. In addition to the basic requirements, there are some new rules and regulations that need to be followed by qualified seniors.
There are a few differences between a HECM for Purchase and a Traditional HECM, including the types of properties that may be eligible, the cash required at closing, the involvement of a Real Estate Agent in the loan process, and the recommendation of a professional home inspection.
A reverse mortgage is only available for certain types of properties.
The same as a home equity conversion mortgage or reverse mortgage that is federally insured.
Selecting A Home For Purchase & Getting An Inspection
HUD strongly suggests that all seniors get their home inspected by a licensed professional home inspector (this is not a requirement).
Writing An Offer
Standard HECM closing costs plus:
What Is The Monetary Investment Requirement?
As part of the closing process, HECM borrowers are required to provide a monetary investment that will go towards satisfying the difference between the HECM principle limit and the sale price for the property, plus any HECM loan services fees that are not financed or offset by other FHA funding sources. The reverse mortgage proceeds and the proceeds from the sale of the old property (or from the borrower’s savings) must be sufficient to purchase the new property outright. Any HECM loan related fees not financed or offset by other allowable funding sources are also included in the difference between the principal limit and sales price for the property. Borrowers may make larger investments to retain a portion of HECM proceeds for future draws.
What Are Allowable Funding Sources?
Prior to closing, lenders are required to verify the source of all funds. Savings and checking accounts can be verified with a verification of deposit, along with the most recent bank statement. A lender must obtain a credible explanation of the source of funds if there have been large increases in an account or if the account has just been opened. Documentation must accompany the FHA case pack. If the necessary documentation is not provided, a notice of rejection will be issued and the endorsement will be delayed.
What Funding Sources Are Ineligible?
To meet the monetary investment requirement or pay the closing costs required to complete the purchase transaction, borrowers may not obtain a bridge loan (also known as gap financing) or use other interim financing methods. A subordinate lien, personal loans, cash withdrawals from credit cards, seller financing and any other loan commitments that cannot be met at closing are among the restrictions.
What Is The Role Of A Real Estate Agent?
It is a good idea to include contingencies in the written agreement – such as the sale of the senior’s previous home, a home inspection, etc.
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