12. What would be an “allowable FHA funding source” for gap financing of the equity portion?
A withdrawal from the mortgagor’s savings or retirement account would be an acceptable funding source.
13. Can prospective seniors apply credit card cash advances towards the required monetary investment or closing costs?
No. This would be a violation of 24 Code of Federal Regulations 206.32(a), which requires all outstanding obligations connected to the HECM transaction, purchase or otherwise, to be satisfied
prior to or on the date of closing.
15. Is seller financing permitted? No
16.Is the Real Estate Certification required? Yes
17. When purchasing a new primary residence, if the Purchase Reverse Mortgage proceeds do not cover the sales price, can part or all of the property’s indebtedness be
subordinated behind the first and second HECM liens if the existing lien holder is willing to execute a subordinate agreement?
No. All existing liens must be satisfied at the HECM closing.
18. Can prospective seniors obtain a secured or non-secured loan from another asset (i.e., car, home equity line of credit, or investment property or second home) to satisfy
the monetary investment or closing costs?
No. Consistent with existing policy, bridge loans and other interim financing methods associated with HECM transactions are prohibited, unless the unpaid or outstanding obligation can be satisfied prior
to or on the day of closing.
19.Should the lender obtain a credit report for non borrowing spouses?
Yes. Although one spouse will become the HECM mortgagor, the lender must obtain the credit report for a review of financial obligations, monetary judgments and liens
that could jeopardize the HECM lien status/clear and marketable title.
20. Under what conditions may a senior cancel the purchase reverse mortgage transaction?
The senior may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior decides to cancel the transaction, he/she must notify all parties in writing. Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.
21. Can the senior applicant participate in a rent back/leaseback agreement with the seller?
No. When purchasing a new principal residence, the HECM mortgagor has 60 days to occupy the home. Unlike a forward mortgage, there is an increased risk to FHA when
the home is not occupied by the HECM mortgagor. Prior to closing, the HECM mortgagor and seller should agree to a date for physical occupancy of the property and the lender should confirm occupancy prior to their submission of the case binder to the local HOC for endorsement.
22. Are the mortgage proceeds paid to the seller through escrow?
The title company (settlement agent) is responsible for disbursing funds in accordance with State law.
23. Are there special procedures for foreclosure homes that will serve as collateral for a purchase transaction?
No. FHA has sufficient valuation guidelines related to comparable sales and declining markets to address the resale of foreclosed properties. HUD has imposed a standard
of accountability to which lenders, sponsor lenders, and loan correspondents will be held is the same as the standard used to impose civil money penalties for program violations, and that standard is one of knowing (actual knowledge)
or had reason to know.
24. Does FHA have special eligibility requirements for first-time home buyers?
No. FHA encourages all first-time home buyers to meet with a reverse mortgage counselor that offers pre-purchase counseling to educate themselves on the responsibilities of becoming a homeowner. Prior to signing a sales contract, FHA encourages a home inspection of all properties that will serve as collateral for HECM for purchase transactions. The inspection serves two purposes, to determine the magnitude, if any, of repairs and/or rehabilitation the home as well as helps the buyer to negotiate the purchase price in situation where a home requires repair or rehabilitation.
26. If the property appraises for more than the purchase price, will the lender use this amount to determine the reverse mortgage amount?
No. When HUD first announced the program, they did state that they would use just the appraised value but before the program ever went live, they issued a Mortgagee Letter changing it to the LOWER of the appraised value or the sales price to determine the benefit amount. Borrowers are often confused by old websites from lenders and HUD that have since been changed but they are looking at old data that still exists on the web. Your mortgage benefits will be determined by the appraised value or the sales price, whichever is lower.