HECM for Purchase
Basics September 21st, 2009
A new HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from a reverse mortgage.
The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction. The obvious benefit is that the borrowers would have no mortgage payments due on the new principal residence plus they keep most of the profit from the sale of their previous residence. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or to downsize to homes that better meet physical needs (handrails, one level properties, ramps, wider doorways, etc.).
Fixed Rate HECM
The Fixed Rate HECM loan is eligible. Single family and existing one-to-four unit properties where construction has been completed and the property is habitable as evidenced by local jurisdiction issuance of certificate of occupancy are covered under the plan. No application can be taken if the COA has not been issued.
The property must also meet FHA minimum property requirements. All repairs to correct major 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. Examples of major deficiencies include no running water, leaking roof, no primary heat source, inadequate electrical system, inoperable doors & windows, state or local code violations.
It has always been possible for seniors to sell one home and then purchase another and then obtain a HECM or reverse mortgage on that new home. The problem has been coordination of the three transactions. After selling the old residence, 2 more closings were required (with 2 sets of fees & closing costs) – now the new principal residence purchase transaction can take place simultaneously with the reverse mortgage.
Do The Math
You will want to work with an experienced reverse mortgage consultant for assistance with this new program to insure that you fully understand the process. Many real estate sales experts do not. But it’s simple, really. Imagine you come to closing for your new, down-sized home closer to the grandchildren with a pile of money in the bank from sale of the old house. Say you made $350,000 on that deal. If your new home costs $300,000 you probably can reverse mortgage $200,000 of that cost. You are out-of-pocket only $100,000 as a down payment on the new home; you have a reverse mortgage with no monthly payments for the remaining $200,000; and you have $250,000 left in the bank. Nice leverage. Do the math. This is an outstanding expansion of the HECM program for seniors. Find a loan officer who will help you do your own calculations.
Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant
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