Frequently Asked HECM Reverse Mortgage Purchase Questions
What is HECM for Purchase?
What is the purpose of the program?
Under what conditions may a senior cancel the purchase transaction?
Once a principal residence has been purchased using HECM loan proceeds, can the property serve as collateral for another secured loan?
What property types are eligible?
Can a HECM for purchase be used to satisfy outstanding payment obligations associated with a land contract?
Can a lender take application on a property that is under construction and not habitable?
What property types are ineligible?
- Cooperative units
- Newly constructed residences 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 or homes that are installed or were occupied previously at another site or location.
Are set asides for repairs allowed?
To be eligible for federal insurance, the property must meet FHA minimum property requirements. All repairs to correct major property deficiencies that threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property must be completed by the seller prior to closing. Appraisers must complete the appraisal report as "Subject To" the completion of these repairs.
Major Property Deficiency Examples:
- No running water
- Leaking roof
- No primary heating source
- Inadequate electrical system (including lighting)
- Inoperable doors and windows (inhibited ingress and egress)
- State or local code violations
Are gifts an acceptable source of funding?
Prospective mortgagors may use their own money or money obtained from the sale of assets. The monetary investment requirement can also be met by the use of approved funding sources as defined in HUD Handbook 4155.1 REV-5, section 2-10, with the exception of the following funding sources which may not be used:
- Sweat Equity
- Trade Equity
- Rent Credit
Cash or its equivalent, in whole or in part, from the following parties, before, during or after loan closing:
- The seller or any other person or entity that financially benefits from the transactions, or
- Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in the previous bullet.
Are seller concessions allowed?
Is seller financing permitted?
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?
Can the HECM mortgagor participate in a rent back/leaseback agreement with the seller?
Does FHA have special eligibility requirements for first-time homebuyers?
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The services referred to herein are not available to persons located outside the state of California.
Borrower is responsible for property taxes, homeowners insurance, and property maintenance. A HECM is a home-secured debt payable upon default or a maturity event. Some restrictions apply. This material has not been reviewed, approved, or issued by HUD, FHA, or any government agency.