Purchase A New Home With A Reverse Mortgage
How can a Reverse Mortgage be used to PURCHASE a new home?
Well, a reverse mortgage for purchase allows eligible senior homeowners the ability to purchase a new home using their HECM loan proceeds with a transaction that only involves one set of closing costs. This is a huge advantage over buying a home and getting a reverse mortgage after, which would involve two complete sets of closing costs.
Created by the FHA’s Housing and Economic Recovery Act of 2008, this program was made available to consumers in January 2009.
Program Overview
- This loan may be used to purchase an existing 1 to 4 unit property
- Home must be used as borrower(s) principal residence
- No additional liens are permitted upon completion of the loan (Lender in 1st position, HUD in silent 2nd)
- Borrower(s) must provide monetary investment at closing from allowable funding source
- The property must be occupied within 60 days of closing
- Newly constructed properties are required to have a certificate of occupancy issued by the time the HECM loan is insured by FHA (‘endorsed’)
- All of the basic HECM loan requirements rules apply to this program
Traditional HECM vs. Reverse For Purchase
- Costs associated with closing may be higher
- Cash is required at closing
- Eligible property types
- Home inspection (recommendation)
- Having a Realtor involved
Eligible Property Types
- Single-family homes
- Detached homes
- Townhouses
- Two-to-four unit properties that are owner-occupied
- FHA-approved Condominiums
- Some manufactured homes are eligible but must meet FHA guidelines.
Ineligible Property Types
- Cooperative units
- Manufactured housing built before 1976 and lacking permanent foundation
- Bed and breakfast properties, boarding houses
What Is The Monetary Investment Requirement?
HECM borrowers must provide a monetary investment at closing to satisfy the difference between the HECM principal limit and the sales price for the property, plus any HECM loan related fees that are not financed or offset by other allowable FHA funding sources. In other words, the proceeds from the reverse mortgage and any funds from the sale of the old property (or from the borrower’s savings) must be enough to purchase the new property outright.
Allowable Funding Sources
- Your own money or money obtained from sale of assets.
- Withdrawals from your savings or retirement account
Lenders will be required to verify the source of all funds prior to closing.
Ineligible Funding Sources
- Loan discount points or Interest rate buy downs
- Closing cost assistance
- Builder incentives
- Seller contributions or seller financing
- Credit card advances
- Secured or non-secured loans from another asset (car, home equity)
- You may not use a bridge loan (or gap financing) or engage in other interim financing methods to meet the requirement
