HECM for Purchase Guidelines
Guidelines | FAQ | HECM for Purchase
This page outlines a fairly comprehensive guideline overview for the HECM for Purchase program.These guidelines are also downloadable as a pdf document.
Feel free to contact Ken Metcalf or call 800-266-9010 for further information!
Documents Required
- Counseling Certificate
- Fully Executed Sales Contract (aka Purchase Contract) (copy is acceptable)
- Fully Executed Earnest Money Agreement (can be part of the Contract or an addendum – copy is acceptable)
- Proof of Sources of All Borrower Funds
- VODs required to be obtained by broker on all applicable accounts
- Bank or Retirement Account Statement(s)–minimum of 2 most recent months (all pages).
- Retirement funds must be liquid – funds must be withdrawn and deposited with title/escrow or in borrower’s checking/savings account with supporting evidence.
- If there is a large increase in an account, or an account was opened recently, a credible explanation and proof of the source of those funds is required.
- Cleared Check(s)
- Certificate of Occupancy or equivalent (for new construction). Note: Per the HUD FAQ document, an application may NOT be taken prior to a Certificate of Occupancy being issued
- Credit report for all borrowers and non-borrowing spouses
Principal Limit Calculation
- The principal limit calculation will be based upon a combination of the following:
- The Age of the Youngest Borrower
- The Current Interest Rates
- The Lowest of the Appraised Value, Actual Sales Price, or the Lending Limit
MIP
- Borrowers with an existing HECM loan are not eligible for MIP reduction
- The purchase transaction must be entered into FHA Connection as a new HECM loan
Ineligible Property Types
Certain property types are ineligible for FHA insurance under the HECM for Purchase program, including (i) coops; (ii) newly constructed properties where a certificate of occupancy or its equivalent has not been issued; (iii) existing manufactured homes built before June 15, 1976; and (iv) existing manufactured homes built before June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards.
Resale Guidelines
FHA requires lenders to take necessary steps to ensure that:
- Any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and
- For re-sales that occur between 91 and 180 days where the new sales price exceeds 100% of the previous sales price, FHA requires additional documentation validating the property’s value.
Downpayment and Allowable Costs -Who can pay for what?
It will be important that you review each purchase contract and any addendums to make sure the contract complies with the guidelines below before submitting the loan. With regard to Question 12 in the FAQ document that reads “Are gifts an acceptable source of funding?”HUD explicitly responds as follows:“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.”
Senior borrowers must make a down payment sufficient to satisfy the difference between the HECM principal limit and the sales price for the purchased property, plus any HECM loan related fees that are not financed or otherwise offset by allowable funding sources. Seniors will either need to use cash on hand or cash from the sale of other assets for this down payment.
Seniors obtaining a HECM for purchase may not obtain a bridge loan (or so-called gap financing) or employ other interim financing techniques to meet down payment requirements and/or pay for closing costs. This restriction includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitments that cannot be satisfied at closing. The source of all funds must be verified prior to closing.
While it is not unusual to see a seller credit towards non-reoccurring closing costs in a forward mortgage purchase transaction, based on the above, the lender will not fund a HECM for Purchase transaction which contains any type of seller concession or seller credit in the purchase contract or addendums. Any contract or addendum received containing any type of seller concession or seller credit must be renegotiated and the concession or credit eliminated. All changes made to the purchase contract must be initialed by all parties of the contract and any changes or addendums must be reviewed and approved by an Underwriter prior to closing.
The BUYER must pay all costs normally associated with purchasing a property and obtaining the loan which include, but are not limited to, the following:
- Loan Origination Fee
- Counseling Fee
- Credit Report Fee
- Appraisal Fee
- Flood Certificate fee
- Document preparation (new loan) (or attorney fee in Texas)
- Notary fees
- Buyer’s Attorney fees, if applicable
- Survey fee (if required)
- Buyer’s share of escrow/signing/settlement/closing fees (usually split 50/50 between buyer and seller)
- Recording charges/tax stamps for all documents in the buyer’s name
- Hazard/Fire insurance premium for the first year
- Flood insurance premium for the first year (if required)
- Applicable portion of HOA dues
- Mortgage insurance premium
- Tax proration
- Home Inspection Fee (may be paid by either buyer or seller)
- Home warranty (can be paid by either the buyer, property seller or realtor)
- Any other customary fee (allowable by HUD) applicable to obtaining the loan
The buyer may contract for and pay additional closing costs other than those listed above on behalf of the property seller (such as the title search or title insurance premium). In other words, the buyer may contract with the property seller to pay some of the property seller’s costs but the property seller may not pay the buyer’s costs other than noted herein.
The PROPERTY SELLER must pay all costs normally associated with selling a property in an acceptable condition in compliance with FHA guidelines which include, but are not limited to, the following:
- Real estate commissions
- Document preparation fee for deed
- Documentary transfer tax
- Any city transfer/conveyance tax
- Payoff of all loans in seller’s name
- Interest accrued to lender(s) being paid off, statement fees, reconveyance fees, prepayment penalties or other costs associated with the seller’s loan(s) being paid off
- Termite inspection
- Termite work
- Home Inspection Fee (may be paid by either buyer or seller)
- Home warranty (can be paid by either buyer, seller or realtor)
- Any judgments, tax liens, etc., against seller
- Tax proration for any taxes unpaid at time of transfer of title
- Recording charges to clear all documents of record against seller
- Any bonds or assessments
- Any and all delinquent taxes
- Notary fees
- Title Search and Insurance premiums (seller can pay all title premiums)
- Seller’s Attorney fees, if applicable
- Applicable portion of HOA dues
- Homeowner’s association transfer fee
- Seller’s share of escrow/signing/settlement/closing fees (usually split 50/50 between buyer and seller)
Repairs
Any repairs required to ensure the property is in a physical condition compliant with FHA guidelines must be performed before closing and the seller must pay 100% of the repair costs.
Insurance Requirements
- Twelve (12) months Hazard Insurance premium; typically paid at closing
- Twelve (12) months Flood Insurance premium (if required); typically paid at closing
Rescission Period
A Notice of Right to Cancel will be required for all HECM Purchase transactions however the funds used for the purchase transaction itself are not rescindable, only the non-purchase money portion of loan proceeds are rescindable within the three day rescission period. The purchase money portion of loan proceeds may be disbursed prior to the end of the rescission period.
Post Funding Requirments
- The borrower must occupy property within 60 days of closing
- The borrower may not agree to rent back/leaseback the property to the property seller
