Buying A Home In Arizona Using an FHA Reverse Mortgage

Posted by Tammy McHood on November 21st, 2008

Question: Is it possible to buy a home using a FHA Reverse Mortgage?

Answer: Yes, starting January 1, 2009

In response to the new FHA HECM Reverse Mortgage For Purchase program, HUD has compiled a list of 25 frequently asked questions.  Here are our favorite 14 questions and answers from the 25 HUD has on their website:

Home Equity Conversion Mortgage for Purchase
Frequently Asked Questions

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.

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.

What activities can be performed prior to January 1, 2009?
Lenders may take application but they may not process or perform services that would result in a charge to a prospective mortgagor.

Can lenders refer clients, who are interested in a HECM for purchase transaction, to a HUD-approved housing counseling agency before January 1, 2009?
No. Counseling on HECM for purchase transactions will become available January 1, 2009.  Counselors need time to adjust to the new provisions

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

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.

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.

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.

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.

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.

Are seller concessions allowed?
No.  Seller concessions are applicable to forward mortgages only.

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.

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.

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.

If you are a senior who is currently looking to purchase a house, it is entirely possible that the new FHA HECM for Purchase reverse mortgage program is a viable option!

See all 25 FAQ’s on HUD’s Website.

See HUD’s official Mortgagee Letter about the FHA HECM Purchase program.



November 21, 2008 | Filed Under Arizona Home Financing Options, Arizona Reverse Mortgages 

comments

One Response to “Buying A Home In Arizona Using an FHA Reverse Mortgage”

  1. Telegraph on December 27th, 2008

    In the most parts of the UK the house prices have dropped almost 15% on average since their peak last year. Some economists predicted this crash back in 2005 and are expecting a further 20% drop. The sale and rent back market has been growing at phenomenal rate due to the rising number of homeowners struggling with their mortgages.

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