What Is Reverse Mortgage for Home Purchase Program
by Christine W. from Stonington, CT
Ask Kate about the Reverse Mortgage for Home Purchase Program: The FHA Home Equity Conversion Mortgage (HECM) is most commonly used for refinancing. Featuring no monthly house payments, the program produces steady income for Senior homeowners. But few know that Senior home buyers can also take advantage of the program.
Backdrop to Reverse Mortgage for Purchase Program
Not new by any means, Congress approved the Reverse Mortgage for Home Purchase Program in 2008. Eligible home buyers over the age of 62 can use it to buy a house (often to downsize) in a single transaction, avoiding duplicate closing costs.
Before 2008, Senior home buyers needed to purchase a house with a traditional mortgage (or cash). Then after funding, they were forced to pay a second set of closing costs to set up the Reverse Mortgage and pay off their current home loan.
Before we go any further, you may be wondering how this program differs from the traditional Forward Mortgage. The answer is simple: The lender pays the homeowner! More Reverse Mortgage information in a moment
Basic Reverse Mortgage Eligibility
But for now, here's the skinny on the FHA Reverse Mortgage. Being at least 62 years old and purchasing the property to live in as your principal residence are at the heart of the program.
You also cannot have current delinquencies on federal loans.
You must be able to demonstrate the financial ability to pay ongoing costs such as property taxes, homeowners insurance premiums, condominium dues (when applicable), and basic property maintenance.
Requirements for Home Buyers
As a home buyer, you will be required to have enough in savings to equal the difference between the proceeds of HECM and the sales price or appraised value, whichever is less. You will also need to pay mortgage closing costs.
For example, the sales price and appraised value of the house you wish to buy is $200,000. The financing fees (lender and third party charges) are $3000. The reverse mortgage proceeds are $100,000. You will need $103,000 in savings to apply toward the purchase of your home. ($200,000 + $3,000 - $100,000 = $103,000.)
Prepare to be a savvy borrower! Brush up on mortgage closing costs and how to read Good Faith Estimates
Reverse Mortgage Cash Guidelines
What are the options if the amount of cash in savings is insufficient to cover the difference between the sales price and the HECM proceeds?
Home buyers can tap into retirement programs for additional cash or apply the proceeds from the sale of an asset. Family members can gift money to be used in the transaction. Approved community grants and employer programs may also contribute.
But the home buyer cannot use credit card advances or borrow against another asset (real estate or car, for example) to bridge the gap. Neither can the seller pay for closing costs or provide secondary financing.
HUD-Approved Required Counseling
Every Reverse Mortgage borrower is required to attend a HUD-approved HECM counseling session. The class will cover eligibility, drawbacks, responsibilities, alternative financing, costs, and repayment options. Call 800-569-4287 for HUD's Housing Counseling Agency Locator. Have your zipcode handy when you place the call.
Now continue reading Christine's story followed by my answers for more information on this unique income producing program with no monthly payment requirement for Senior home buyers.
Reverse Mortgage Purchase Program By Christine W. from Stonington, CT
I am selling my home to net me around $500K. I would like to purchase a home in Florida with a reverse mortgage, for around $200K. I want to put 50% down and take no withdrawals except for emergencies, at a fixed rate.
How difficult is this to explain when I make an offer? For instance, how stringent are the FHA requirements and how do I know if a home would even pass these stringent requirements?
Can I get a fixed rate reverse mortgage to purchase?
If I take no withdrawals, I am accruing only the interest fees on the purchase amount borrowed, correct? They cannot add more fees than that?
***zz-portrait-left.shtml*** Ask Kate answers: Purchase Reverse Mortgage
It should not be too difficult to explain to your seller that you are using the Reverse Mortgage Purchase Program if
you have chosen a well-versed real estate agent and a HUD-approved lender with current experience in the program.
I do not recommend attempting to negotiate the offer on your own.
Upfront FHA Property Inspections
FHA property guidelines focus on the basic safety, health conditions, and soundness of the property. But sometimes, FHA requirements can throw a curve-ball.
So consider getting an inspection before agreeing to buy the house. While this requires an upfront investment on a property you may not end up buying, you are signaling the seller that you are a serious home buyer.
Check with your Realtor if this can help you negotiate a more favorable price. Ask the lender how repairs revealed by property inspection can be worked into your HECM transaction.
HECM Minimum Withdrawals and Fixed Rates
Yes, you can get a fixed rate. But you must ask your lender if they offer the plan whereby you can get a fixed rate without the requirement of a minimum withdrawal at closing. You should also ask for any restrictions on minimum and maximum withdrawals in the future and the frequency of the withdrawals. Don't forget to get this in writing!
If you will not be taking a withdrawal at closing, you should not be charged any interest. But again, get this term in writing.
Be Aware of Reverse Mortgage Servicing Fees
Lenders are allowed to charge servicing fees to administer a Reverse Mortgage. Some charge them monthly ($35 maximum) while other lending institutions raise the interest rate to cover the fees.
Keep this in mind when you shop lenders. The lowest rate may not be the best deal if monthly servicing fees are going to be added to your loan balance.
Ask the lender if they charge servicing fees and how much they are. Once more, get this in writing.
Now for more information, you are invited to browse my series on Reverse Mortgages. ***zzz-link-reverse-mortgage.shtml*** Best wishes,
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