Frequently Asked Questions
1. What is HECM for Purchase?
HECM for Purchase allows seniors, age 62 or older, to purchase a new principal
residence using loan proceeds from the reverse mortgage.
2. What is the purpose of the program?
The program was designed to allow seniors to purchase a new principal residence
and obtain a reverse mortgage within a single transaction by eliminating the
need for a second closing. The program was also designed to enable senior
homeowners to relocate to other geographical areas to be closer to family
members or downsize to homes that meet their physical needs, i.e., handrails,
one level properties, ramps, wider doorways, etc.
3. What property types are eligible?
Existing one-to-four unit properties where construction has been completed and
the property is habitable. See ML 2007-06.
4. Can a HECM for purchase be used to satisfy outstanding payment obligations
associated with a land contract?
Yes, if the property will be used as collateral for the HECM and the mortgage
will be held in fee simple, or on a leasehold under a lease for not less than 99
years which is renewable, or under a lease having the remaining period of not
less than 50 years beyond the date of the 100th birthday of the youngest
mortgagor.
5. Can a lender take application on a property that is under construction and
not habitable?
No. The lender may only take application once the Certificate of Occupancy or
its equivalent has been issued.
6. What property types are ineligible?
Cooperative units; Newly constructed residence where a Certificate of Occupancy
or its equivalent has not been issued by the appropriate local authority;
Boarding houses; Bed and breakfast establishments; Existing manufactured homes
built before June 15, 1976; and Existing manufactured homes built after June 15,
1976 that fail to conform to the Manufactured Home Construction Safety
Standards, as evidenced by affixed certification labels (e.g., data plate and
HUD certification label) and/or lack a permanent foundation as required in HUD’s
Permanent Foundations for Manufactured Housing Guide.
7. Are set asides for property charges (i.e., tax and insurance) allowed?
Yes.
8. Are gifts an acceptable source of funding?
No. Prospective mortgagors may only use their own money or money obtained from
the sale of assets. FHA prohibits the use of loan discount points, interest rate
buy downs, closing cost assistance, builder incentives, gifts or personal
property given by the seller or any other party.
9. What would be an “allowable FHA funding source” for gap financing of the
equity portion?
A withdrawal from the mortgagor’s savings or retirement account would be an
acceptable funding source.
10. Can prospective mortgagors apply credit card cash advances towards the
required monetary investment or closing costs?
No. This would be a violation of 24 Code of Federal Regulations 206.32(a), which
requires all outstanding obligations connected to the HECM transaction, purchase
or otherwise, to be satisfied prior to or on the date of closing.
11. Are seller concessions allowed?
No. Seller concessions are applicable to forward mortgages only.
12. Is seller financing permitted?
No
13. Is the Real Estate Certification required?
Yes.
14. When purchasing a new principal residence, if the HECM proceeds do not cover
the sales price, can part or all of the property’s indebtedness be subordinated
behind the first and second HECM liens if the existing lien holder is willing to
execute a subordinate agreement?
No. All existing liens must be satisfied at the HECM closing.
15. Can prospective mortgagors obtain a secured or non-secured loan from another
asset (i.e., car, home equity line of credit, or investment property or second
home) to satisfy the monetary investment or closing costs?
No. Consistent with existing policy, bridge loans and other interim financing
methods associated with HECM transactions are prohibited, unless the unpaid or
outstanding obligation can be satisfied prior to or on the day of closing.
16. Under what conditions may a senior cancel the purchase transaction?
The senior may decide to cancel the purchase transaction at any time prior to
the date of closing. If the senior decides to cancel the transaction, he/she
must notify all parties in writing. Where earnest money has been provided, the
senior should review the sales contract to determine if the earnest money is
refundable. The Federal Reserve Board of Governors should be contacted for right
of rescission and Truth in Lending Act guidance.
17. Can the HECM mortgage participate in a rent back/leaseback agreement with
the seller?
No. When purchasing a new principal residence, the HECM mortgagor has 60 days to
occupy the home. Unlike a forward mortgage, there is an increased risk to FHA
when the home is not occupied by the HECM mortgagor. Prior to closing, the HECM
mortgagor and seller should agree to a date for physical occupancy of the
property and the lender should confirm occupancy prior to their submission of
the case binder to the local HOC for endorsement.
18. Are the mortgage proceeds paid to the seller through escrow?
The title company (settlement agent) is responsible for disbursing funds in
accordance with State law.
19. Are there special procedures for foreclosure homes that will serve as
collateral for a purchase transaction?
No. FHA has sufficient valuation guidelines related to comparable sales and
declining markets to address the resale of foreclosed properties. HUD has
imposed a standard of accountability to which lenders, sponsor lenders, and loan
correspondents will be held is the same as the standard used to impose civil
money penalties for program violations, and that standard is one of knowing
(actual knowledge) or had reason to know.
20. Does FHA have special eligibility requirements for first-time homebuyers?
No. FHA encourages all first-time homebuyers to meet with a reverse mortgage
counselor that offers pre-purchase counseling to educate themselves on the
responsibilities of becoming a homeowner. Prior to signing a sales contract, FHA
encourages a home inspection of all properties that will serve as collateral for
HECM for purchase transactions. The inspection serves two purposes, to determine
the magnitude, if any, of repairs and/or rehabilitation the home as well as
helps the buyer to negotiate the purchase price in situation where a home
requires repair or rehabilitation.