Reverse mortgage to buy a home | md va dc
The newest wrinkle in reverse mortgages is that they can now be used to purchase a principal residence under the FHA Home Equity Conversion Mortgage (HECM) for Purchase program.
How does HECM for Purchase work?
-The purchaser(s) must be 62 or older.
-The appraised value of the home (or contract price if it is less) is subjected to a discounting calculation based on the age of the purchaser(s)
and the current interest rate. The result is the “principal limit,” which is
the amount available under HECM for a purchase. The older the purchaser(s), the higher the limit.
-The principal limit cannot be greater than the general HECM limit of
$625,500 for 2009.
-The difference between the principal limit and the purchase price plus the
program fees (which will run to 7% and up), must be made up by the
purchaser. This essentially constitutes the downpayment on the home.
For example, on a home that sells and appraises for $300,000 and has a
principal limit of $195,000 and fees of $21,000, a purchaser would have to
bring $126,000 to the settlement table. This might seem like a big cash
commitment, but consider the benefit: it enables a purchaser who has substantial assets (such as from the sale of a previous home), but
income that might, otherwise, be insufficient for a home purchase, to
buy a house and have no mortgage payment for life!
While a credit score is not required, the lender will want to determine that
there are no financial obligations, monetary judgments (including any
on a non-borrowing spouse) or liens that could jeopardize the HECM lien
and compromise clear title. If you choose, you can provide a larger
investment amount in order to retain a portion of the available HECM proceeds for future draws.
Taxes, insurance and any repairs remain the purchaser’s responsibility to pay. Understand, FHA is very careful about determining the source of purchaser’s assets for the required investment, so they will insist on verification of the sources of these funds.
Bridge loans and other gap financing methods can’t be used to meet the cash investment requirement or pay closing costs nor can subordinate liens, personal loans, cash withdrawals from credit cards, or seller financing.
Borrowers can use the HECM for the Purchase program on a new primary
residence while retaining their existing home as a rental property. Lenders will need proof of income sufficient to pay mortgage payments, taxes, insurance and maintenance.
HECM for Purchase applicants have to undergo counseling with a FHA approved counselor. © 2007, Real Estate Information Services, Capitol Assets & Choice Finance®
Eric Strasser, 301-996-5001
Loan Officer for Maryland, Virginia, D.C.
choicefinance.net contributing writer