Loan Programs

HUD Issues HECM for Purchase Guidelines

By James Comtois

WASHINGTON - The U.S. Department of Housing and Urban Development has issued guidelines for the purchase of homes by seniors utilizing the Federal Housing Administration-insured Home Equity Conversion Mortgage program. Under amendments to the HECM program enacted as part of the Housing and Economic Recovery Act of 2008, qualifying buyers will be able to purchase new homes with reverse mortgages.

The new guidelines for the HECM for Purchase program require borrowers 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. Only properties where construction is completed are eligible.

Ineligible property types include: cooperative units; 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.

At closing, the borrower must provide funds to cover the difference between the HECM principal limit and the sales price for the property, plus any loan related fees that are not financed or offset by other allowable FHA funding sources.

Borrowers may not obtain a bridge loan, also known as "gap financing," or engage in other interim financing methods to meet the monetary investment requirement or payment of closing costs needed to complete the purchase transaction.

There is a counseling requirement for the HECM for Purchase program.

The program will take effect on Jan. 1st, 2009.

"The HECM for Purchase adds an interesting new option for anyone over 62 years old looking to relocate into a new home that can better fit their needs in years to come," said Peter Bell, president of the National Reverse Mortgage Lenders Association. "Proceeds from the sale of their former home can be combined with funds from a reverse mortgage on the new home, allowing the home purchase to be made without the future responsibility of monthly mortgage payments."

As part of the Housing & Economic Recovery Act of 2008, HUD recently approved a single national loan limit of $417,000 for federally insured HECM reverse mortgages, which went in to effect on Nov. 6, 2008. The new, higher lending limit will enable borrowers to obtain a greater benefit if their home value is higher than the previous HUD limit. Previously, the HECM program assigned different lending limits by county ranging from $200,160 in rural areas to $362,790 in the highest home value areas. Similarly, existing borrowers whose home value is greater than the new HUD limit may be able to increase their benefit by refinancing their reverse mortgage.