HECM for Purchase
Purchase A New Home With A HECM Reverse Mortgage
A HECM for Purchase allows eligible homebuyers age 62 or older to purchase a new principal residence using proceeds from a Home Equity Conversion Mortgage. This program combines the home purchase and reverse mortgage into a single transaction.
One potential benefit is that the borrower does not have to purchase the property first and then obtain a separate reverse mortgage. Instead, the HECM financing is established as part of the purchase transaction, subject to FHA requirements and applicable program guidelines.
How Does A HECM for Purchase Work?
The process begins when an eligible borrower selects a qualifying property. The HECM loan is then used as part of the financing for the purchase.
Generally:
- The borrower must be at least 62 years old
- The property must become the borrower’s principal residence
- The home must meet applicable FHA property standards
- The borrower provides the required funds at closing
- The transaction must satisfy HECM and purchase requirements
- The borrower generally must occupy the property within the required timeframe
The HECM for Purchase is different from a traditional HECM because the loan is used to finance the acquisition of a new home.
What Are The Basic Requirements?
Eligible borrowers generally need to:
- Meet the applicable HECM age requirement
- Purchase an eligible principal residence
- Complete required HECM counseling
- Meet applicable financial assessment requirements
- Provide the required monetary investment
- Obtain acceptable property documentation
- Occupy the property as the principal residence
- Satisfy FHA and lender requirements
Additional requirements may apply depending on the property, transaction, and borrower circumstances.
Eligible Properties
A HECM for Purchase may be available for certain qualifying properties, including:
- Existing one-unit homes
- Certain two-to-four-unit properties, when the borrower occupies one unit
- Eligible condominium units
- Certain manufactured homes that meet applicable FHA requirements
The property must satisfy applicable FHA and HECM standards.
Properties That May Not Qualify
Certain properties may be ineligible for HECM for Purchase financing. Depending on applicable guidelines, examples can include:
- Cooperative housing
- Certain manufactured homes that do not meet program standards
- Investment properties
- Vacation or secondary residences
- Properties that do not meet applicable FHA requirements
Property eligibility should be confirmed before entering into a purchase transaction.
Required Monetary Investment
A HECM for Purchase requires the borrower to provide funds toward the purchase transaction. The required investment generally covers the difference between the HECM proceeds available and the property’s purchase price, along with applicable costs that are not financed.
Allowable funds may generally come from sources such as:
- The borrower’s personal savings
- Proceeds from the sale of another property
- Eligible retirement or investment account withdrawals
- Other permitted assets or funding sources
All funds used to satisfy the required investment must meet applicable documentation and verification requirements.
Selecting A Home
Choosing the right property is an important part of the HECM for Purchase process.
Before purchasing, borrowers should consider:
- Whether the property meets FHA and HECM requirements
- The overall condition of the home
- Property taxes and insurance
- Ongoing maintenance expenses
- Location and accessibility
- Future housing needs
- The total amount required to complete the transaction
A professional home inspection is strongly recommended so the buyer can better understand the condition of the property before completing the purchase.
Home Inspection
A qualified home inspection can help identify potential issues involving:
- Structural components
- Roofing
- Plumbing
- Electrical systems
- Heating and cooling systems
- General property condition
- Repairs that may be needed
An inspection can also help the buyer understand potential future maintenance expenses.
Required Repairs
If the property has conditions that affect health, safety, structural integrity, or applicable FHA requirements, repairs may need to be completed before the transaction can close.
The purchase agreement should clearly identify applicable inspection and repair requirements. Responsibility for completing repairs may depend on the terms negotiated between the buyer and seller and applicable program rules.
Writing An Offer
When making an offer on a property, buyers should consider including appropriate contingencies.
These may address:
- Property inspection
- Financing approval
- Required repairs
- Appraisal
- Other purchase conditions
Buyers may also choose to have the purchase agreement reviewed by a qualified real estate attorney or other professional where appropriate.
Closing Costs
A HECM for Purchase may involve standard mortgage and purchase-related expenses.
Potential costs may include:
- Origination charges
- FHA mortgage insurance premiums
- Appraisal fees
- Title services
- Recording fees
- Transfer taxes where applicable
- Settlement charges
- Other third-party expenses
Some eligible costs may be financed through the HECM, while other amounts may need to be paid from allowable funds at closing.
Occupancy Requirements
The property purchased through a HECM for Purchase must generally become the borrower’s principal residence.
The borrower must occupy the property within the timeframe required by the applicable program and continue meeting the occupancy requirements after closing.
Common Questions About HECM for Purchase
Who Can Use A HECM for Purchase?
The program is generally available to eligible homebuyers age 62 or older who meet HECM requirements and intend to occupy the purchased property as their principal residence.
How Much Money Do I Need For The Purchase?
The required amount depends on the purchase price, the HECM proceeds available, closing costs, and other applicable factors. The borrower must provide the required funds from an allowable source.
Can I Buy Any Type Of Property?
No. The property must meet applicable FHA and HECM eligibility requirements. Property type, condition, occupancy, and other factors can affect eligibility.
Do I Need A Home Inspection?
A home inspection is generally not the same as an FHA appraisal requirement, but obtaining an inspection from a qualified professional is strongly recommended so the buyer can identify potential property issues before purchasing.
Can I Use The Home As A Second Residence?
No. The property generally must be occupied as the borrower’s principal residence.
Can I Move Into The Home After Closing?
Yes. The borrower must meet the applicable HECM occupancy requirements and establish the purchased property as the principal residence within the required timeframe.
Explore HECM for Purchase Options
A HECM for Purchase can provide an alternative way for eligible seniors to finance a new principal residence while using reverse mortgage financing. Because purchase requirements, property eligibility, available proceeds, and borrower obligations can vary, understanding the details of the program is important.
Michael S. Wayland, Jr., Senior Loan Officer with C2 Financial Corporation, can help you learn more about HECM for Purchase requirements and the steps involved in the financing process.