Can a contractor build a new home for you and finance it with a reverse mortgage upon completion? Thank you -Bob

The short answer to your question is, yes, you can. As a matter of fact, HUD has made changes to the program that make financing reverse mortgage purchases and new construction easier than ever with a reverse mortgage.

HUD Policies on Reverse Mortgages for New Construction

In response to evolving needs in the housing market, HUD has continued to refine its approach to reverse mortgages on new construction properties. Previously, obtaining a reverse mortgage on a newly constructed home could be delayed until a Certificate of Occupancy (COO) was issued. This posed challenges for borrowers eager to settle their construction financing or finalize their home purchase from a builder. However, HUD’s updated guidelines offer greater flexibility and clarity, making the process more accessible and streamlined for borrowers.

Home Building Options for Reverse Mortgage Financing

Builders can construct homes in several ways for the end buyer. Most commonly, homes are built as part of a tract or as single speculative properties (spec homes). The builder aims to sell and close the home as quickly as possible after completion. Under previous and current HUD guidelines, borrowers can begin their loan application before the home is completed, streamlining the process once the COO is issued.

Custom Home Construction on Owned Land

For those who own land, the option to contract a builder to construct a home is less common but viable. Landowners may finance the construction with personal funds or a construction loan. Subsequently, they might wish to replace these funds with a reverse mortgage, which can be initiated prior to construction completion under the updated guidelines.

Updated HUD Guidelines for Reverse Mortgages: Documentation and Closing Considerations

With the latest updates, HUD now provides additional pathways for verifying the completion and compliance of new construction properties in the absence of traditional COO issuance. When an appraisal for a new construction property is marked “Subject to Completion Per Plans & Specifications,” borrowers can now satisfy documentation requirements in one of the following ways:

1. Certificate of Occupancy: Issued by the local authority, this document confirms that the property meets all building codes and is ready for occupancy.
2. HUD-92051 Compliance Inspection Report: This report from the appraiser verifies the property is built according to the approved plans and specifications.

For areas where local authorities do not issue a COO, the HUD-92051 report can be completed by an ICC-certified RCI (Residential Combination Inspector) or CI (Combination Inspector). If such inspectors are unavailable, the report may alternatively be completed by a disinterested third party who is a registered architect, structural engineer, or a qualified tradesperson or contractor, provided they meet the licensing and bonding requirements of the state where the property is located.

Additionally, a Temporary Certificate of Occupancy can be accepted when minor items remain unfinished due to weather conditions — such as driveway installation, landscaping, or exterior painting. This ensures that borrowers are not unduly hindered by seasonal challenges that could delay the completion of their homes.

HUD’s Continuous Adaptation to Market Needs

These updated guidelines represent HUD’s commitment to adapting its policies to meet the needs of modern homebuyers and builders. By allowing more flexibility in the documentation process, HUD is ensuring that reverse mortgages can be as viable for new construction properties as they are for existing homes. This is a positive development for prospective reverse mortgage borrowers, offering them more options and expediting the loan process for newly constructed homes.

Stay tuned for HUD’s upcoming guidelines on purchase transactions and allowances for third-party costs to be covered by interested parties (realtors, lenders, etc.), which promise to further enhance the benefits available to reverse mortgage borrowers.

Ready to Build Your Dream Home with a Reverse Mortgage?

With the latest updates to HUD guidelines for reverse mortgages, building your dream home is now more accessible than ever. Whether you’re purchasing a new construction home in a tract development, contracting a builder for a custom home on your land, or navigating the updated documentation requirements, a reverse mortgage for purchase can be the perfect solution.

Start by calculating the required down payment with our Reverse Mortgage Purchase Calculator, and begin your journey toward your dream home today!

Building or Buying New Construction? See how the HECM for Purchase works on new builds. Get a free quote from All Reverse Mortgage, Inc. (ARLO™) — America’s #1 Rated Lender with a 4.99/5-star rating! Call (800) 565-1722 or click here for your free quote — simple, trusted, 100% secure!

ARLO recommends these helpful resources:

• Here’s an Ideal Reverse Mortgage Purchase Example
• HECM for Purchase Frequently Asked Questions