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Buying A Home In Arizona Using an FHA Reverse Mortgage
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.
FHA Reverse Mortgages: How Old Do You Have To Be?
A common question we are asked is “how old do you have to be in order to get an FHA-insured reverse mortgage?”
The simple answer is… 62.
But wait, there is more to the story.
The are strict age requirements to the FHA/HECM (Home Equity Conversion Mortgage) program and the age requirements state that each borrower be at least 62 years of age.
It seems that quite often, we speak with people where one person is over age 62, but their spouse is not. What happens in cases where both people are not over age 62 — does this mean that they can not participate in the FHA/HECM program?
It depends on what choices they make.
Possible Choice #1
Since one of the seniors is not yet over the age of 62, this means that the couple will not qualify for the reverse mortgage program and need to wait until both people are over age 62.
Possible Choice #2
Since one of the seniors is not yet over the age of 62, the spouse who is taken off title, which allows the spouse who is over 62 to qualify alone for the FHA/HECM program.
Ramifications Depending On Your Choice
If you choose #1, it is simple.
If you choose #2, be aware of the following possible scenarios:
Assume for a moment that the younger spouse who was taken off title is the first spouse to pass away. Since this younger spouse wasn’t an owner of the property, their death will not impact the program that is in place and the surviving spouse will continue living in the property with no changes to their reverse mortgage.
Now, let’s pretend that the older spouse who was on title and participating in the FHA/HECM program is the first spouse to pass away. If this were to happen, the loan then becomes due and in this case, the loan would need to be repaid in full.
So, in order to remedy this situation - the surviving spouse would need to do one of the following:
- Sell the home and move out
- Pay off the loan balance with savings or a regular “forward mortgage”
- Obtain a reverse mortgage (assuming that they are now over the age of 62 and meet the criteria)
If you are thinking about a FHA-insured reverse mortgage and either you or your spouse is not yet over the age of 62, this is only one of the many choices you will be faced with and need to be aware what impact your choices will have.
The FHA/HECM program is helping many seniors enjoy retirement - but it can also be a burden in the future if you don’t plan according to the choices you make!
Reverse Mortgage? Your Lender May Call You With An Offer You Can’t Refuse
Imagine for a second the following scenario:
- You are age 70.
- You live alone.
- You are living on social security and a small pension.
- You have never used the Internet.
- You have lived in your home for 25 years.
- You have recently had some unexpected expenses arise and you find yourself not being able to make your mortgage payment each month.
- You are currently at least 30 days late on your mortgage and don’t know how you are going to be able to afford to stay in your home.
Now imagine being in this situation and then getting a call from your lender offering a possible solution to your situation — the FHA reverse mortgage program because your situation had been “discovered” by a software package used by your lender.
Expect to see this happen in the near future thanks to software by First American.
What % of the estimated 684,000 people aged 50 and older who are currently behind on their mortgage (and that is an old statistic) will the FHA reverse mortgage program help?
I don’t know for sure, but if it helped even 10% of them, that is almost 65,000 seniors who will be able to stay in their home and not have to worry about making another mortgage payment.
Are Loan Modifications Real?
The other night, I found myself in the twilight zone and was having flashbacks to the year 2005.
I was at a neighbors house and he was having a “neighborhood get-together” with a handful of other families. We live in a newly built neighborhood and new people are moving in all the time, so I was meeting a few of our neighbors for the first time. One of them asked what I did for a living and when I answered “oh, Tammy and I are mortgage folks”, it was the trigger where the twilight zone theme started playing in my mind.
If you lived in Arizona in 2005 and attended a neighborhood party, what was the main topic that seemed to dominate every conversation?
In 2005, the main topic that dominated neighborhood conversations all around Arizona seemed to be the recent run-up in home values and “could you believe that so-and-so paid how much for that house?”
Fast forward to 2008.
The main topic of our neighborhood party today?
“Can you believe what so-and-so’s bank did to modify their loan? Their new house payment is only going to be __________ for the next 5 years!”
I left the party scratching my head… I mean - it was full of all kinds of stories about people getting their loan modified. You almost felt out of place there if you hadn’t had yours modified!
I would estimate that a full 25% of all of the people there had already had their loan modified and after the stories that were being told, I wouldn’t be surprised if the other 75% wasn’t far behind them in getting the process started.
Are loan modifications real?
Yes. Yes, they are.
And they apparently are only going to get more popular in coming months if/when the federal government begins to encourage lenders to modify people’s loans.
Having Trouble Making Your Mortgage Payment? Bailout Talk Live On KTAR!
Arizona Mortgage Team on KTAR Radio
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This morning we were live on the radio with KTAR superstar Darrell Ankarlo talking about the 700 billion bailout and what it means to people who are having trouble making their mortgage payment. The discussion centered around “what should I do if I am having trouble making my mortgage payment?”
My general answer was “keep talking to your lender about what your options are because the rules are changing almost daily about what lenders are and aren’t willing to do. If you spoke to your lender last week and they told you that they couldn’t help you, call back again this week. And next week. And the week after that.”
Why?
Because as I said on the air – the rules are changing and the federal government may soon be coming out with packages that will incentivize lenders to get better at working with borrowers.
Arizona Mortgage Rates for November 14, 2008
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