Purchasing a Home with a Reverse Mortgage.
For the most part, the paperwork and the guidelines regarding this mortgage are the same as those regarding the most common reverse mortgage, the Home Equity Conversion Mortgage (HECM), which is an FHA loan. The option to purchase a home with a reverse mortgage was set to be available January 1, 2009, although as of writing this article is still undergoing final guideline and FHA regulation. The purchase reverse mortgage came out of the Housing and Economic Recovery Act of 2008. (This may be the best thing to come from this Act, because frankly many other things failed miserably.)
The main benefit of purchasing a home with a reverse mortgage is because now with this option;
The purchaser does not have to qualify and close on a traditional mortgage, and than
Refinance into a reverse mortgage
Aside from the hassle of closing two loans, the home buyer would have to pay closing costs twice. OUCH. That's no way to treat our seniors!
Let's review some common reverse mortgage (HECM) guidelines.
- Must be 62 years old
- The property must be the borrower's primary residence
- With a traditional reverse mortgage refinance, a fair amount of equity is required. With a purchase reverse mortgage scenario, the borrower must provide the monetary investment at closing from an allowable funding source.
* Allowable Funding Sources *
When purchasing a home using a reverse mortgage, the monetary investment will be for (at least) the difference between the maximum reverse mortgage amount allowed and the purchase price. This will vary based on the sales price of a home among other factors.
Example: If the sales agreement is for $100,000, and the maximum allowable amount for the reverse mortgage is 60% of the purchase price, than the borrower will be required to come up the difference, or 40% ($40,000), plus any applicable closing costs.
A Borrower may only use their own money or money obtained from the sale of property or other assets. This includes retirement accounts, the sale of a home(s), the sale of fine art, etc.
VERY IMPORTANT POINTS TO PONDER
With a reverse mortgage purchase, these items below are NOT allowed.
No discount points are allowed
There are no rate buy-down options
No gifts are allowed (as in, a financial gift from a relative)
No closing cost assistance (seller concessions)
No builder incentives
No seller contributions
No seller financing
Unlike traditional FHA financing, monetary gifts from family members are not allowed. You also may not obtain personal loans, cash advances from credit cards, or EVEN equity from a property's home equity line. Lenders are required to source all funds used in the transaction.
A home buyer may elect to put more money down than the minimum required, so that they can leave a portion of the reverse mortgage available as a home equity line for future use.
Real Estate Agents
If you are a real estate agent looking to help clients out that are utilizing a reverse mortgage to purchase a home, keep in mind these important factors:
- Required repairs must be completed before settling on the home,
- These repairs must be included in the purchase agreement,
- The buyer can NOT put any money into repairs of the property before they own the home, and
- All offers must be contingent on a satisfactory inspection conducted by a qualified inspector.
One of the factors I found interesting is that a reverse mortgage client may choose to cancel the transaction at any time prior to closing. This is not to say that they will not lose their deposit money, but they do have this option. One other difference in a reverse mortgage purchase loan versus a traditional reverse mortgage (refinance) is that there is no 3-day rescission period. Once settled, that's it.
This wraps up our series on reverse mortgages. If you would like to visit any of the other posts on reverse mortgages, check out the links below.
As always, if you have any questions or need any assistance at all, feel free to call Steve Kappre direct at 856-419-3561.
- Reverse Mortgages ~ Who is Eligible? - Part 1
- Reverse Mortgages ~ Payment Options - Part 2
- Reverse Mortgages ~ Expected Costs, Appraisals, and Title - Part 3
- Reverse Mortgages ~ Counseling - Part 4
- Reverse Mortgages ~ Is Reverse Mortgage Income Taxable? - Part 5
- Reverse Mortgages ~ What Happens When My Reverse Mortgage is Due? - Part 6
- Reverse Mortgages ~ Purchase a Home with a Reverse Mortgage - Part 7
Steve Kappre is a Certified Mortgage Planner with Treasury Mortgage, a subsidiary of Aurora Financial Group, serving all 50 states, focusing on Gloucester, Camden, and Salem County, NJ. Steve specializes in;
• All areas concerning First-Time buyers; First-Time Buyer mortgages, grants, down payment assistance, tax credits, police and fire loans, rehab loans for first time buyers, and more.
• Reverse Mortgages for seniors age 62 or older.
• Equity Management strategies for high-end homes and high net worth individuals.
Contact Steve Kappre directly at 856-419-3561 or at www.stevekappre.com