California Reverse Mortgages by your Sacramento Reverse Mortgage Provider

You Can Purchase a Home with a Reverse Mortgage

by Jeffrey L. Bangerter
November 03, 2008

Starting January 1st 2009 you can use a reverse mortgage to finance the purchase of a home to be used as your primary residence.

The Federal Housing Administration (FHA) defines “HECM for Purchase” as a real estate purchase where title to the property is transferred to the HECM mortgagor, which the mortgagor will occupy as a principal residence, and, at the time of closing, the HECM first and second liens will be the only liens against the property.

HECM mortgagors must occupy the property within 60 days from the date of closing.

Lenders are required to ensure all outstanding or unpaid obligations incurred by the prospective mortgagor, in connection with the HECM transaction, are satisfied at closing.

Eligible Property Types

Only properties where construction is completed, as defined in Mortgagee Letter 2007-06, are eligible for FHA insurance under the HECM for Purchase program.

Loan proceeds may be used to satisfy outstanding payment obligations associated with a land contract, contract for deed or other similar purchasing arrangements that will ensure the property, which will be used as collateral for the HECM, meets FHA’s title requirements.

Those requirements, as provided in section 255(b)(4) of the National Housing Act and implemented in the HECM regulations at 24 CFR 206.45, provide, in part, that the HECM must be on real estate held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having a remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.

Ineligible Property Types

The following property types are ineligible for FHA insurance under the HECM for Purchase program:

  • Cooperative units;
  • Newly constructed principal residence where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority;
  • Boarding houses;
  • Bed and breakfast establishments;
  • Existing manufactured homes built before June 15, 1976; and
  • Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g. data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide.

Be careful not to get caught up in a Property Flipping Scheme as HUD has strict requirements that the seller has actually owned the home for over 90 days and will even need proof of the last purchase price if the last owner has owned the property for less than 180 days.

Prohibition on Property Flipping Described

Property flipping is a practice whereby a property is resold a short period of time after it is purchased by the seller for a considerable profit with an artificially inflated value, often abetted by a lender’s collusion with the appraiser.

FHA’s policy prohibiting property flipping eliminates the most egregious examples of predatory flips of properties within the FHA mortgage insurance programs.

Overview of FHA’s Property Flipping Policy

FHA requires that:

  1. only owners of record may sell properties that will be financed using FHA-insured mortgages;
  2. any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and
  3. for resales that occur between 91 and 180 days where the new sales price exceeds the previous sales price by 100 percent or more, FHA will require additional documentation validating the property’s value.

FHA also has flexibility to examine and require additional evidence of appraised value when properties are re-sold within 12 months.

Also keep in mind that a reverse mortgage provides between 50% and maybe 70% (please call for a quote) of the home value in reverse mortgage funds, so this is not a program for folks who have no money to put down.

It is a great way to upscale from your current home; for example if you sold a home and received $180,000 net from the sale you might be able to use the reverse mortgage loan to buy a home worth $400,000!

Each age and situation is unique and you need a quote to know for sure how much you qualify for, give us a call and we will be happy to give you the quote over the phone.