HECM for Purchase FAQ — Eligibility, Down Payment, Property Types & Seller Concessions

Hello John, Yes, HUD did change their guidelines. HUD initially would not even allow lenders to begin the application process before the final Certificate of Occupancy (CO) was issued on a new home or even a home that had been substantially rebuilt or remodeled (such as a fire or "down to the studs" remodel). The lending community and others petitioned HUD to change this requirement for some time before HUD finally agreed to allow borrowers to make application prior to the CO's issuance. There is no longer any prohibition by HUD on when the borrower may make application for the loan, but you still may not close the loan until after the CO has been issued. This makes it much easier for borrowers looking at new construction as most builders are looking to close the purchase as soon as possible after the CO is issued, not start the loan at that point. The appraisal must be completed after the property is complete or there must be 1004D performed by the appraiser with new photos as well. The appraiser must also recertify the value as of the date of reinspection and lenders could require additional comparable sales depending on when the appraisal was completed and how old the original comparable sales were on that appraisal. It is much less expensive, usually takes no longer and cleaner to order the appraisal as soon as the CO is issued as appraisers can complete an appraisal on new construction very quickly in most instances. We have borrowers who make application as soon as they know they want to purchase a specific home and that gives us the opportunity to get their income and credit documentation together and reviewed and be sure the borrower meets all the HUD requirements from the start. The documents often must be updated if they are older by the time we are ready to close, but that is quick and easy and we already know by then what those items will show and if there are any issues we need to overcome before closing. The Case Number may be pulled from HUD as soon as we have an application. This usually means that we have coverage against any HUD program changes, but not always. Sometimes HUD will make changes and give a deadline on when those loans must close. Sometimes the secondary market will do it as loans must be sold into securities and as the programs wind down, the numbers may not be large enough to support leaving certain parameters open to continue to close stragglers that cannot be included in the new securities. Almost certainly you would be covered for 60 - 90 days but after that, it would be subject to HUD and the market. Reverse mortgage loans are not locked in advance. Because of the uniqueness of the product, lenders cannot just buy other products to hedge the interest rates on reverse mortgages for longer terms or program risks. Luckily, the rates are very stable and do not fluctuate day to day but over a 3- or 6-month period, no one can make any promises. Counseling is valid for 6 months.