The 25 Most Frequently Asked Questions For The HECM For Purchase Loan
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1. What is the minimum age to qualify for this program?
Answer: The youngest borrower must be at least 62 years of age.
2. What is the best use of the HECM Reverse Mortgage Purchase?
Answer: Seniors who can buy a home with a large down payment and have no mortgage payments on the balance owed. Seniors also now have another option besides paying all cash for a property and keep more money in their pocket from the prior sale of their home (assuming it was sold). Being able to relocate to be closer to their children and grandchildren or move to a warmer climate are also benefits.
3. What is the minimum down payment for the HECM Reverse Mortgage for Purchase loan?
Answer: It depends on the purchase price of the subject property, borrower ages, and prevailing interest rates. A typical down payment is close to 50% of the purchase price.
4. What’s the first step in originating a HECM Reverse Mortgage?
Answer: Borrower counseling must be done first by a third party non-lender counselor. The cost ranges from $75-$150 and can be done over the phone or in person. A certificate will be generated after the counseling session is done. A lender may not start the application process until you receive the certificate.
5. Is the HECM Reverse Mortgage Purchase loan federally insured?
Answer: Yes. This means that if the balance of the loan ever got to be higher than the sales price of the home, the insurance will pay off the gap. This insurance is included in the loan which makes the loan a non-recourse loan so the heirs or estate don’t have to pay any balance owed.
6. Are all reverse mortgages federally insured?
Answer: No. Not all reverse mortgages are HECM’s, some are privately funded and do not come with any insurance. For example there are jumbo reverse mortgage loans that can fund a loan up to $2 million dollars. These proprietary non HECM loans have their own unique features, rules and guidelines.
7. What if the HECM Reverse Mortgage for Purchase balance is higher than the value of the property at the time of sale, do the heirs owe the balance?
Answer: No. The FHA MIP (mortgage insurance premium) will pay for the difference which means this loan is non-recourse.
8. Am I able to make monthly payments on the HECM Reverse Mortgage Purchase loan if I want to?
Answer: Yes. And in some cases it makes sense to do so from an estate point of view.
9. If I choose not to make any monthly mortgage payments on the HECM Reverse Mortgage what happens to the balance of my loan on a monthly basis?
Answer: Each month you don’t make a payment, the balance of the loan goes up which is why a large down payment or ample existing equity is required to get the loan.
10. Due to the fact that the loan may absorb equity in the property, (by choosing to not make monthly payments the balance of the loan balance goes up), do my heirs have any right to the equity remaining in the property?
Answer: Yes. If there is equity remaining at the time of sale, your heirs are entitled to that equity, not the lender. Upon the passing of the last remaining spouse, when the home is sold if there is no equity remaining in the property, the heirs or beneficiaries may be entitled to a portion or all of the interest that has accumulated on the reverse mortgage at the time of sale, which is dependent on several factors. Please consult an estate planning attorney for guidance on this. It’s best to get this squared away prior to or shortly after the subject property closes escrow.
11. How does one qualify for the HECM Reverse Mortgage for Purchase?
Answer: As of 2015, borrowers have to be at least 62 years of age. The process is now similar to that of a conventional loan. Credit is pulled and examined, income is now taken into consideration, borrowers must be able to pay the property maintenance expenses, i.e.…property taxes, homeowners insurance and homeowners association fees in a timely manner, and have funds left over to live comfortably. If the borrower’s numbers are out of line, per the lender, the lender may require funds paid upfront to cover these expenses for a period of years. The lender will than take this set aside fund and pay the expenses for that period of time as they become due. The process is not near as stringent as the forward mortgage process used for FHA and Conventional financing
12. What are the minimum credit guidelines required to qualify for the HECM Reverse Mortgage for Purchase?
Answer: A bankruptcy must be dismissed or discharged at the time of application. Foreclosures and deed in lieu of foreclosures must be at least 3 years old. Any FHA loan or student loan that is default or experienced a loss other than the agreed upon original amount may disqualify the borrower altogether. No more than two 30 day lates in the past 24 months and no 30 day lates in the past 12 months. No 90 day lates, or being 60 days late two times within the past 24 months on credit related debt. Collection accounts and charge offs are looked at on case by case basis.
13. What type of properties can I purchase with the HECM Reverse Mortgage for Purchase?
Answer: Single family residences, and when it makes sense to lender, 1-4 units.
14. Can I purchase invest property with this loan?
Answer: No. The subject property must be owner occupied.
15. Can newly constructed properties be purchased with the HECM Reverse Mortgage Purchase loan?
Answer: Yes, as long as the property has a certificate of occupancy issued.
16. Can I purchase a manufactured home with this loan?
Answer: Yes. As long as the property qualifies with HUD guidelines, which includes being retrofitted for earthquakes.
17. Is the HECM Reverse Mortgage for Purchase an FHA loan?
Answer: Yes, it is part of the FHA family of loans.
18. Can the seller of the home I’m buying help pay for my closing costs?
19. Can borrowed funds be used to cover the down payment and closing costs?
Answer: No. The source of funds for the down payment and closing costs have to come from the sale of a prior property, savings accounts, investments liquidation, and cash gift funds from a blood relative (must meet HUD guidelines.)
20. Can the seller carry back a trust deed to help get a transaction closed when I use the HECM Reverse Mortgage for Purchase?
Answer: No. Carry backs are not permitted with this loan.
21. Can a spouse less than 62 years of age go on the loan and title to the home?
Answer: No. However, they may reside in the home as long as the property is their primary residence, even if their spouse, who is older than 62, passes away. The surviving spouse not on the loan or on title to the home may stay in the property but will have no access to future funds from the reverse mortgage but will be able to stay in the property as long as the property is kept up to minimum HUD health and safety standards and that they pay their property tax and homeowners insurance in a timely manner.
This is for new loans going forward after 2014. For loans in existence prior to late 2014, different rules apply and the non-borrowing spouse may possibly have to sell, vacate or get a new loan to pay off the reverse mortgage.
22. How many days after escrow do I have before I have to move into the property?
Answer: 60 days.
23. Can I buy a fixer upper with this loan?
Answer: No. The property must meet HUD health and safety standards prior to a loan being done on the subject property. If the work that needs to be done on the property is not of a health and safety nature, and the appraiser doesn’t make a note in their report to this effect, the property may close in as is condition.
24. What is the maximum loan amount I can obtain with the HECM?
Answer: The FHA HECM reverse mortgage maximum loan amount varies on the county you live in. The high cost areas of the U.S. have a maximum loan amount of $679,750 as of March 2018. However there is a jumbo reverse mortgage that can lend up to $2 million however it needs to be noted this loan does not come with mortgage insurance and is not an FHA loan. It does make sense at times to pursue this loan when it makes sense, but if possible try to secure the FHA HECM first.
25. Does the reverse mortgage lender own the property and can they foreclose.
Answer: No and Yes. You own the home just as you do with a forward mortgage. Even though you aren’t required to make payments on a reverse mortgage, the lender can foreclose for non-payment of property taxes or homeowner association fees or if you don’t keep the home up to minimum HUD health and safety guidelines. Since reverse mortgages lenders are now pre-qualifying borrowers to make sure the property taxes are taken care of, either by the borrower paying them or the lender setting up an account to have them paid (using a portion of equity for a pre-determined period of time) lender foreclosures have decreased.