Home Equity Conversion Mortgages


If you are 62 + of age you can use the equity from the sale of your previous home, other cash or savings to move into a different home with just a single down payment. It will allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction. The program was also intended to enable senior homeowners to move to other geographical areas to be closer to children and relatives or downsize to homes that meet their physical needs.

Conventionally, ‘relocating seniors’ would sell the family home with lots of equity and use most of the proceeds to purchase a new, often smaller home, for cash. They chose the cash purchase route not because they had lots of it, but because most seniors are payment a reverse. Now, thanks to HUD, seniors can have their cake and eat it too! With the HECM (Home Equity Conversion Mortgage) for Purchase program, seniors can acquire a more suitable residence, use only a piece of the sale proceeds and defer all final payments until they no longer reside in their newly purchased home. This would be the only payment you will ever make towards the purchase regardless of how long you live in the home or what happens to home values.

What are appropriate property types?

The property must be an eligible HECM property; owner occupied single family residence, 2-4 units, PUDs or FHA approved condos. (In considering a condo, call to inquire if it is FHA certified) New construction must be fully completed, and a certificate of occupancy issued. You must occupy the home within 60 days of closing.

What cost can the seller pay and what fees must the buyer pay? Allowable Fees must be typical for the market. Costs associated with the HECM loan must be paid by the buyer. Seller cannot pay pre-paid costs. Taxes and HOA dues are paid by buyer on a prorated basis. Seller can only pay the contract costs such as transfer tax, real estate commissions, title search, and cost characteristically paid by the seller.

Will a credit report require to be taken for a non-borrowing spouse?

Yes. Although one spouse will become the HECM Mortgagor, the non-borrowers credit must be reviewed for any financial obligations that could jeopardize the HECM lien status/ clear and marketable title.

At what point must reverse mortgage counseling be fulfilled?

Counseling is Required Prior to Opening Escrow. Request a Pre-Counseling Packet and Counselor List and complete your counseling before making an offer. It is required to have the counseling certificate in the file before the loan process can begin. All borrowers, non-borrowing spouses and attorney-in-facts must receive counseling and the Counseling Certificate issued prior to opening escrow.

Is this an option for New Construction?

Yes, as long as a Certificate of Occupancy has been issued and property ready to occupy.

What must be incorporated in the purchase contract of sale?

FHA Amendatory Clause , FHA Real Estate Certification, Language indicating Seller is responsible for completing and paying for required repairs prior to closing. A Contract of Sale, fully executed with signatures of all parties and all amendments signed and initialed. It is recommended to include a Mortgage Contingency. FHA encourages a Home Inspection conducted by a qualified Home Inspector prior to signing a sales contract. 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 Closing must take place in the Settlement Agent’s office.

What source of funds are satisfactory and what records are needed for the down payment?

Seller concessions or down payment assistance is NOT allowed. Down payment requirements are higher than traditional mortgages because there must be equity available for interest to accrue over the owner’s lifetime as no monthly loan payments are required. If down payment is from bank or investment accounts, a verification of deposit along with original statements that cover the most recent 3-month period are required on all accounts. If a gift is being used, a gift letter, evidence of donor’s ability to provide the gift from seasoned funds and evidence that funds have been transferred into Borrower’s account prior to closing is required. (funds must be seasoned) If the source of funds comes from the sale of the homeowner’s principal residence or other owned property, and the sale is occurring the same day as the closing on the HECM, a copy of the executed HUD-1 and cashier’s or certified check, evidencing the sale, may be used to confirm the funding source.

What are ineligible Funding Sources include?

Credit card advances, bridge loans, personal loans, subordinate liens, loan discount points, interest rate buy downs, closing costs assistance, builder incentives, gifts or personal property given by the seller or any other party, seller concessions or financing, loans against borrower assets, down payment assistance programs are prohibited.

What if borrowers using the HECM for Purchase for a new primary residence choose to retain their existing home as a rental property?

Lenders must ensure that you have sufficient income to maintain the costs associated with the new home financed with the HECM for Purchase (i.e.: taxes, insurance, maintenance). Satisfy the monetary investment for the HECM for purchase transaction and continue to make the mortgage payment and tax and insurance payments on the existing mortgage.

How is the down payment determined?

The calculation is based on age of youngest borrower, current expected interest rate and the maximum claim amount or value (the lower of the actual sales price, appraised value or FHA maximum claim amount.)

What documentation is required?

  • Counseling Certificate (original—signed and dated)
  • Legible copy of Social Security Card (security or Medicare card)
  • Acceptable Photo ID Proof of Age—Drivers license or senior ID
  • Complete copy of Living Trust Agreement with notary acknowledgment (if your property will held in a living trust)
  • Homeowners Insurance Policy (and flood policy if required)