HECM for Purchase

Counseling should be completed prior to the application (but not required). The Counseling Certificate should have the senior’s current home address on the property.  Once a property is under contract, we’ll get the Certificate corrected.

• All borrowers must be at least 62 years old and have been issued the mandatory Counseling Certificate.
• The needed monetary investment must be documented and come from acceptable sources.
• The home must be their future Primary Residence and occupied within 60 days after closing.
• The home must meet the minimum FHA Guidelines for property standards.
• A “Financial Assessment” will be completed to assure the investor that the senior can maintain their financial self-reliance and that the new property taxes and homeowners insurance will not cause a financial burden.

Yes. Colorado Reverse Mortgage will show you both Fixed and ARM options. Any of the available Reverse Mortgage programs may be used for the HECM for Purchase.

No. For a home to be eligible to participate in the HECM for Purchase program, the property must meet FHA minimum property requirements at time of closing.

Repairs are required for any health, safety or structural integrity issues if the appraiser calls for them. The repairs must be completed by the seller PRIOR to closing and the Appraiser will be required to re-inspect the property to certify that all repairs were completed satisfactorily. All repairs to correct major property deficiencies that threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property must be completed by the seller prior to closing

Buying a “fixer-upper”, a “handyman special” or an “as-is” type of property should send up red-flags and the property probably won’t be acceptable for the HECM for Purchase financing scenario.  The Buyer cannot (and should not) put any of their own money into repairs before they own the home. This is the Seller’s responsibility.

The appraisers inspection is cursory and not detailed like an actual Inspector’s Report. If the Purchase Agreement calls for Inspections, the inspections are for the sole use of the Buyer and the lender will not need to see it. We strongly encourage any home buyer to get inspections completed.

• No running water
• Leaking roof
• No primary heating source
• Security Bars without quick release latches preventing acceptable egress.
• Empty swimming pools
• Missing flooring
• Missing stucco on the exterior of the building
• Unsafe outbuildings or sheds
• Inadequate access to all crawl or attic spaces
• Inadequate electrical system (including lighting)
• Inoperable doors and windows (inhibited ingress and egress)
• State or local code violations

Borrowers may retain existing homes, but will be required to provide a Schedule of Real Estate Owned. Income and assets will be verified to ensure the senior has sufficient income to support the other properties. Also, a Letter of Explanation, rental agreement (if available) and complete tax returns will likely be asked for if you have a history of rental income.

• Resale or New Construction
• Single Family Residences
• Town homes
• FHA approved Condominiums
• Existing two-to-four unit properties

• Cooperative units
• Boarding houses
• Condominiums NOT on FHA’s Approved Condo list
• Bed and breakfast establishments
• Existing manufactured homes built before June 15, 1976; and
• Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g., data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide or homes that are installed or were occupied previously at another site or location.

Follow this link to learn more about Reverse Mortgages on Manufactured Homes.

• A HECM for Purchase transaction is written similar to most other Purchase Contracts, but there are some variances.
• The FHA Amendatory Clause and FHA Real Estate Certification must be written into the contract if it is not already included. However, we recommend getting the most current verbiage on forms provided by your lender.
• The Seller can pay for Closing Costs that are customary for the market area.
• The Seller, Realtor, Lender, or any other party with a vested interest in the transaction may contribute funds up to 6% of the Sales Price. This is a recent change and effective January 2024.
• The Seller can pay for “Inspections and Repairs”. If an Inspection is required on the Purchase Agreement, the completed report must be submitted to Underwriting and all items noted in the report MUST be repaired prior to closing.
• All parties must initial, sign and date all applicable places on the Purchase Agreement. It is not an issue if the agreement, addendum or amendments are missing signatures are dated after the loan application is made. However, all parties must sign properly before the Closing Documents can be prepared.

This may be true depending on the circumstances or the type of cost in question. It is important that Lenders be made aware of all potential costs and costs provided to them should be accurate. Over-disclosing costs is not an issue; under-disclosing costs could cause issues.

Lenders are expected to know their costs and are held to their disclosed fees. However, Lenders are not expected to know other costs (e.g. pest, foundation, roof and other inspections, home insurance premiums, etc.). Working with an experienced Reverse Loan Officer is always recommended.

• Bank Accounts – checking / savings
• Investment Accounts – money market, mutual funds
• Retirement Funds
• Life Insurance – Cash value and face amount
• Gifts – Family members can gift down payment funds with certain restrictions
• Inheritance / Trust Funds
• Government Grants – Many state, county and city agencies offer special down payment assistance programs

Also, Seniors may use their own money or money obtained from the sale of assets (gold, autos, etc.) but a bill of sale or other details will be required documentation. “Mattress Money” can be a challenge and we advise that using document-able and seasoned money for your purchase transaction

Non-acceptable down payment sources include:

• Gift of Equity
• Sweat Equity
• Trade Equity
• Rent Credit
• Cash or its equivalent, in whole or in part, from the following parties, before, during or after loan closing: – The seller or any other person or entity that financially benefits from the transactions, or – Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in the previous bullet. (HUD Handbook 4155.1 REV-5, section 2-10)

For HECM purchase transactions only, the maximum claim amount will be the least of:

1. the appraised value;
2. sale price; or
3. FHA mortgage limit for a one family residence ($822,375).

The Principal Limit is then determined by multiplying the maximum claim amount by the principal limit factor (determined by HUD) corresponding to the age of the youngest borrower and the expected interest rate.

Yes! Effective January 2024, Seller or Builder concessions are allowed on Reverse Mortgages up to 6% of the Purchase Price.

Prior to January 2024, free or reduced upgrades provided by a Builder or Seller were considered an “inducement to buy” and not allowed by HUD. However, effective January 2024, Seller or Builder concessions are allowed on Reverse Mortgages up to 6% of the Purchase Price.

 So YES!!!! It is great!

• Cash from the sale of a prior home
• Withdrawals from Retirement Accounts
• Savings Accounts
• Sale of an asset like a car, coin collection, art, etc. (special documentation will be required, so keep all your paperwork and appraisals to support the sale)
• Gifts (the funds must be sourced, documented and a Gift Letter completed)

Any monies borrowed and “applied toward the HECM for purchase transaction and would violate 24 CFR 206.32 (a) which provides that there shall be no outstanding or unpaid obligations incurred by the HECM mortgagor in connection with the HECM transaction.”

• A bank’s Verification of Deposit (VOD) along with 1 or 2 bank statements. Some banks may charge you to complete the VOD.
• 2 or 3 most recent, consecutive bank statements. All pages to the statement(s) are needed even if that last page is blank. Bank statements that are more than 120 days old prior to the closing date are not acceptable.
• All large deposits are required to be “sourced”. We must see the paper trail of all monies involved. Large deposits and other assets that cannot be documented will be problematic. Examples are gambling earnings, being repaid a loan that you lent a family member, “pennies from Heaven”, etc. The assets in an account that cannot be adequately documented may ultimately be unusable.
• If monies are being transferred or wired from one account to another, we’ll need 2 or 3 bank statements for both accounts, withdrawal and deposit receipts and wiring instructions if applicable.

Prior to closing, the home buyer and seller should agree to a date for physical occupancy of the property. The lender should confirm the intent to occupy by obtaining a Letter of Intent from the homebuyers prior to closing.

You can, but I don’t recommended it for most borrowers (including myself!). FHA encourages a home inspection of properties that will serve as collateral for any home purchase to determine the magnitude, if any, of any repairs or rehabilitation to the home.  Better safe than sorry!

The appraiser’s job is to give a market valuation of the home being considered and to make sure the quality of the home meets or exceeds FHA minimum standards. The appraiser’s inspection is required by HUD.

A Home Inspector is much more thorough and looks for many other items. A quality report will be generated and will report anything from a toilet that wobbles a little to the test results for carbon monoxide leaks. This type of inspection is not required by HUD.

While New Mexico Reverse Mortgage does not require a one, we cannot stress the importance and peace of mind you’ll have by ordering a Home Inspection. Buying a home is a big investment and just because the Sellers are really nice people, does not mean you should blindly purchase the home. Your Realtor will confirm the importance and will give you further advice.

That is a good question. We’ve gotten different replies to that question directly from HUD (the department of Housing and Urban Development) and the most proper answer is likely that it is a combination of all their answers.

Reverse Mortgages are considered Home Equity Loans (not Conventional Loans) and different rules do apply. Often, real estate is also the senior’s largest asset. Additionally, statistics have shown that the senior population is taken advantage of more than any group of people. And, because of this unfortunate truth, seniors must be considered a “Protected Class”. HUD is in charge of creating the rules and policies that everyone in the Reverse Mortgage industry follows.

These rules and policies are not intended to complicate the process, but it does help the entire senior population as a whole and Colorado Reverse Mortgage commends HUD for these protections.