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HECM for Purchase

You can use a HECM for Purchase reverse mortgage loan to buy your next home if:

  • The youngest homeowner is 62 or older
  • The purchased home will be occupied within 60 days of closing
  • The purchased home will be the primary residence
  • Only the HECM mortgage loan can be used to purchase the home
  • The difference between the purchase price of the home and the HECM proceeds will be paid in cash from the sale of an existing home or another source of funds

Example – Selling an existing home

  • A single man, age 62, recently had his home appraised for $250K and still owes $50K; leaving him with remaining home equity of $200K
  • He wants to purchase for $300K
  • Based upon many factors including, the age of the youngest borrower (in this case 62), current interest rates, the lesser of the home’s appraised value, purchase price or FHA national lending limit, and loan fees he is eligible to borrow approximately $165K on the new property
  • He decides to buy the new property using $200K from the sale of his existing home and $100K available from the total HECM loan proceeds of $165.
  • This leaves him with a $65K line of credit from the remaining HECM proceeds
  • As with all mortgage loans you must continue to pay your property taxes and homeowner’s insurance premiums

Example – Paying cash

  • A single woman, age 70, rents a home but has saved $100K to purchase a property
  • She wants to purchase a home for $250K
  • After putting her $100K savings toward the home purchase, she is still short the remaining $150K
  • She decides that a HECM for Purchase is her best option.
  • Based upon many factors including, the age of the youngest borrower (in this case 70), current interest rates, the lesser of the home’s appraised value, purchase price or FHA national lending limit, and loan fees, she is eligible to borrow approximately $150K on the new property
  • She takes the full $150K from the HECM loan proceeds and combines it with her $100K savings for a total of $250K
  • She purchases the new home and will not be required to make monthly mortgage payments
  • As with all mortgage loans you must continue to pay your property taxes and homeowner’s insurance premiums

Special restrictions

  • Gift funds are not acceptable as a form of down payment
  • If the homeowner is using cash, the cash must be seasoned for 60 days
  •  There must be proof that the homeowner has “eligible funds” for the closing and must provide all corresponding documents such as:
    • Letter of Verification
    • Proof of liquidation of retirement assets
    • Deed of Sale
    • HUD1 Home Sale Statement

The property must be a primary residence and can be

  • 1 to 4 units
  • Approved Condominiums

Ineligible property types include

  • Cooperatives
  • Newly constructed principal residences where a Certificate of Occupancy or equivalent has not been issued by the appropriate local authority
  • Boarding house
  • Bed and Breakfast establishments
  • Existing manufactured homes built before June 15, 1976
  • Existing manufactured homes built after June 15, 1976 that does not conform to the manufactured home construction safety standards or lack a permanent foundation

All major home repairs must be completed by the property seller before the loan can close:

  • Critical health, safety and structural integrity issues must be repaired
  • The buyer cannot pay for any repairs before they own the home
  • The repairs must be included in the purchase agreement

Costs

With a HECM for Purchase loan the usual costs associated with selling and buying a property apply as well as the normal reverse mortgage loan fees.