HECM For Purchase

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Home Equity Conversion Mortgage / Reverse For Purchase

A reverse mortgage purchase, also known as a HECM for purchase, allows seniors aged 62 and up to use HECM loan proceeds to acquire a new house. The key advantage for the senior is that the transaction comprises only one set of closing fees, as opposed to purchasing a home and then obtaining a reverse mortgage, which would involve two entire sets of closing costs. The Housing and Economic Recovery Act of 2008, which established this program, went into effect on January 1, 2009. Qualified seniors must meet all HECM standards, which include all of the core rules as well as certain new rules and regulations.

What Are The Fundamentals?

  • Can buy existing 1 to 4 unit properties

  • The property must be used as the primary dwelling.

  • Once the HECM is purchased, no more liens are permissible (Lender in first position, HUD in quiet second).

  • Must offer a monetary investment at closing from an eligible funding source (details below).

  • The property must be occupied within 60 days of closing.

  • When the Home Equity Conversion Mortgage purchase loan is insured by FHA ("endorsed") newly constructed properties must have a certificate of occupancy.

A HECM for Purchase and a Traditional HECM differ in some ways. The main distinctions include the sorts of properties that are eligible, the amount of cash required at closing, the involvement of a real estate agent in the loan process, the suggestion of a professional house inspection, and some closing charges. There are restrictions on which homes are eligible for a Reverse Mortgage

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HECM for Purchase Guidelines

Eligible Properties

Same as federally-insured reverse mortgages or Home Equity Conversion Mortgage loans.

Ineligible Properties

  • Cooperative units

  • Manufactured homes (in certain circumstances they may be eligible)

  • Bed and breakfast properties, boarding houses

Selecting A Home For Purchase & Getting An Inspection

HUD highly advises all seniors to get a home inspection performed by a licensed professional home inspector (this is optional).

  • Examines the physical state of the building, construction, and mechanical systems.

  • Items that must be fixed or replaced before the scheduled closing date are identified.

  • Estimates the useful life of important systems, equipment, structure, and finishes.

  • Buyers should attend the inspection to ask questions about the state and upkeep of the property.

Required Repairs

  • Concerns about health and safety or structural integrity.

  • The seller must do this prior to closing.

  • Included in a purchase agreement.

  • Buyers cannot spend money on repairs until they own the house.

Writing An Offer

  • Must specify that the offer is conditional on a satisfactory inspection performed by a qualified inspector.

  • The borrower may want an attorney to review the loan; this adds fees but may be worthwhile.

  • The client may cancel the transaction at any time prior to closing; however, this may result in the loss of the earnest money deposit.

Standard HECM closing costs plus:

  • Recordation fees

  • Transfer taxes

  • Varies from state-to-state

Common Questions About the HECM For Purchase Loan

What Is The Monetary Investment Requirement?

At closing, HECM borrowers must contribute a monetary investment that will be used to satisfy the difference between the HECM principle limit and the property's sales price, as well as any HECM loan-related expenses that are not financed or offset by other permitted FHA funding sources. In other words, the reverse mortgage proceeds and any revenues from the sale of the old property (or monies from the borrower's savings) must be sufficient to acquire the new home outright. The difference between the loan's principal limit and the property's sales price includes any HECM loan-related fees that are not subsidized or offset by other permissible funding sources. Borrowers can make higher investments in order to keep a portion of the HECM proceeds for future draws.

What are Allowable Funding Sources?

  • Their own money or money obtained from the sale of assets.

  • Withdrawals from borrower’s savings or retirement account are acceptable.

Prior to closing, lenders will be required to verify the source of all funds. Savings and checking accounts can be verified using a verification of deposit and the most recent bank statement. If there is a significant rise in an account, or if the account was recently started, the lender must acquire a convincing explanation for the source of those funds. These documents must be included in the FHA case binder. Failure to present the required documentation may result in a rejection notice and a delay in endorsement.

What Funding Sources Are Ineligible?

  • Loan discount points

  • Interest rate buydowns

  • Closing cost assistance

  • Builder incentives

  • Seller contributions or seller financing

  • Credit card advances

  • Secured or non-secured loans from another asset (car, home equity)


Borrowers are not permitted to get a bridge loan (also known as gap financing) or use other interim financing options to meet the monetary investment requirement or pay closing expenses required to complete the purchase transaction. Subordinate liens, personal loans, cash withdrawals from credit cards, seller financing, and any other lending promise that cannot be honored at closing are all subject to this restriction.


Other Things To Know About HECM for Purchase Loans

  • Unlike a regular HECM, there is no three-day right of revocation. The three-day right of revocation does not apply to HECM Purchase transactions. As a result, the settlement agent may release all initial advances on the day of closing. However, the FHA encourages lenders to seek legal advice to ensure compliance with federal and state regulations.

  • Reverse mortgages do not qualify for seller concessions.

  • Existing HECM borrowers who participate in a HECM for Purchase transaction are ineligible for a reduction in the upfront MIP, and lenders must record the transaction as a new HECM into FHA Connection.

  • HUD-licensed housing counseling agencies that have been approved to conduct reverse mortgage counseling must advise clients who plan to use the HECM for Purchase option on all issues contained in this Mortgagee Letter as well as other HUD rules and issuances.

  • Lenders are required to ensure the property, when used as collateral for the HECM, meets the following property requirements:

    1) It is the borrower’s principal residence;

    2) Construction is complete and a certificate of occupancy or its equivalent has been issued by the time the loan is insured by FHA ('endorsement') or by the lender's deadline, and

    3) Any construction loan financing for the property, which will serve as the collateral for the HECM loan, is satisfied and the HECM liens will be in a first and second lien position, and, at the time of closing, no other liens against the property exist.


Property Flipping

To avoid cases of property flipping, lenders must take steps to ensure that:

  • Only current owners of record may sell properties that will be financed using FHA-insured mortgages;

  • Any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and

  • For resales that occur between 91 and 180 days where the new sales price exceeds 100% of the previous sales price, FHA will require additional documentation validating the property’s value.

Property Flipping Scams

If a lender feels a senior has fallen victim to a home flipping scam, they should alert the Processing and Underwriting Division of the local HOC. Complaints may be reported to HUD’s Inspector General Hotline at: HUD Office of Inspector General Hotline, GFI

451 7th Street, SW

Washington, DC 20410

Toll-free: 1-800-347-3735

TDD: (202) 708-2451

¹There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower is still responsible for paying property taxes, homeowner’s insurance, and maintaining the property to HUD standards. Failure to do so could make the loan due and payable. Credit is subject to age, income standards, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and are subject to change.


²Borrowers should seek professional tax advice regarding reverse mortgage proceeds.

This material is not provided by, nor was it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA). It is not intended to be a substitute for legal, tax, or financial advice. Consult with a qualified attorney, accountant, or financial advisor for additional legal or tax advice.

*There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower(s) must continue to pay for property taxes and insurance and maintain the property to meet HUD standards or risk default. Credit is subject to age, minimum income guidelines, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change.

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