Venn PP  WHAT IS A REVERSE PURCHASE?

Reverse Mortgage house

Created in 2008, the Reverse Purchase allows older homeowners the ability to purchase a new principal residence with a Reverse Mortgage. Since it requires less upfront investment than an all-cash purchase and no monthly mortgage payments,* a Reverse Purchase can help preserve your client’s savings, improve their monthly cash flow, land/or finance a new home that would otherwise be beyond their budget. The program was designed to provide senior homeowners with more housing options while keeping costs down. A Reverse Purchase allows seniors to relocate to a different geographical setting, climate, an area closer to family, or buy a home closer to their desired recreation interests. It can also help seniors relocate to a home that is more affordable, requires less maintenance, or better accommodates their changing physical needs with features like handrails, wider doors, or a single story floor plan. This allows the potential for you to earn a commission on both the listing and the sale of the previous home as you help your clients relocate. Home Equity Conversion Mortgages (HECMS) are government insured, non-recourse loans. This insurance feature guarantees that they will never owe more than the value of their home. No debt will be left to their heirs and at the end of the loan any remaining equity belongs to them. Current HECM policy allows for the heirs to buy the property for 95% of the appraised value, conducted at the end of the loan, even if the house is underwater. More recently, non HECM "proprietary" Reverse Mortgagee have become available that enable clients to buy homes in the one million dollar plus price range and more proceeds from both refinance and purchase situations.  Amounts borrowers can qualify for, starting at age 60, with these loans can be as high as $4 million.

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ELIGIBILITY

Age Borrowers must be 62 years of age or older. Recent program changes now allow for younger, non-borrowing spouses to remain in the home and defer repayment after the borrowing spouse passes away and refinancing is not a viable option. Income Although not required to make principal and interest payments, prospective buyers must show the willingness and ability to pay the property charges for the new home. Property charges may include: property taxes, homeowner’s insurance, HOA dues, maintenance costs, or any other required property fees. When prospective buyers intend to retain an existing home as a rental property, they must have enough income to pay the recurring property charges on both homes. Repairs Any major property deficiencies that threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property must be repaired by the seller prior to closing. Examples include: no running water, leaking roof, no primary heating source, inadequate electrical system (including lighting), inoperable doors and window, state or local code violations. Counseling All borrowers and non-borrowing spouses must receive HUD approved counseling. Family members and trusted advisors are also encouraged to attend.

Principle Residence

HECM mortgagors must occupy the subject property as their principal residence within 60 days from the date of loan closing.

Property Types

Only properties where construction is completed and a certificate of occupancy or its equivalent has been issued are eligible.

  • 1-4 Unit Single Family Homes
  • HUD approved Condominiums
  • HUD approved Manufactured Homes To protect potential borrowers from purchasing a distressed home in need of substantial repairs but being sold at or above market rate, or schemes involving temporary rental arrangements, there are special program requirements:

 

Property Flipping

To protect potential borrowers from purchasing a distressed home in need of substantial repairs but being sold at or above market rate, or schemes involving temporary rental arrangements, there are special program requirements:

  • Only current owners of record may sell
  • Any resale of a property may not occur 90 or fewer days from the last sale
  • For resales that occur between 91 and 180 days additional documentation may be required in order to validate the property value.

 

How much funds are available?

Available funds are determined using a calculation that takes into consideration the following: property value (up to FHA mortgage limits), principal limit factors (predetermined ratios set by HUD), age of the youngest borrower or non-borrowing spouse, and expected interest rate.

Neither closing costs nor upfront mortgage insurance premium are used in the calculation.

Monetary Investment

.(45-50% of new residence sale price)

At closing, borrowers must provide a Monetary Investment to satisfy the difference between the available funds and the sale price for the property. This figure includes the down payment and any loan related fees that are not financed into the loan, minus the amount of the earnest deposit. This large equity requirement is what allows the repayment to be deferred. HECM mortgagers may choose to provide a larger investment amount in order to retain a portion of the available HECM proceeds for future draws.

How can borrowers pay the Monetary Investment?

Prospective mortgagors may use their own money, money obtained from the sale of assets, or gifts from family members. However they are not permitted to borrow funds to cover the cost. Bank statements will be used to verify the sources of funds.

FHA prohibits the following:

Seller Contributions (also known as “seller concessions”), the use of loan discount points, interest rate buy downs, closing cost down payment assistance builder incentives, gifts or personal property given by the seller or any other party involved in the transaction. This includes customary charges that are normally paid on behalf of the borrower by the seller. No credits can appear on the HUD-1.

Other Liens:  All outstanding or unpaid debts incurred by the prospective mortgagor, in connection with the Reverse Purchase, are satisfied at closing.

Bridge Loans: Potential 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. This restriction includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitment that cannot be satisfied at closing.

Purchase Case 1 Purchase Case 2

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