Back to Back Closings
Realtors: 2 Deals In 1 – The Purchase Reverse Mortgage
The Home Equity Conversion Mortgage for Purchase (HECM) is known in the industry as the H4P. The H4P is an FHA Insured reverse mortgage which is guaranteed by the Department of Housing and Urban Development.
In writing this post I recall a specific H4P transaction where I was privileged to originate a purchase reverse mortgage for a delightful fellow Colorado native. This transaction closed in July 2013. The purchaser, age 63, sold her townhome in Parker for $115,000.00 and in conjunction with the H4P used the combined proceeds to purchase a townhome in Castle Rock for $227,600.00.
The financial details of that transaction are as follows: The buyer’s cash to close requirement was $96,400.00 plus her earnest money of $2,000.00. This sum of $98,600.00 included pro-rata property taxes, insurance and HOA fees. The H4P proceeds to close were $129,200.00. In addition, the FHA UFMIP, origination fee and allowed closing costs totaling $11,400.00 were financed. All figures have been rounded to the nearest $50.00.
| Purchase Price | $227,600.00 |
| Buyer Cash to Close + Earnest Money | 98,400.00 |
| H4P Cash at Closing | $129,200.00 |
| Financed Closing Costs | 11,400.00 |
She found it most desirable to purchase her new home and not have to make mortgage payments ever again. Of course, she may make periodic payments or payoff the loan at any time but only if she wishes. It bears observing that she made this decision with the blessing of her children, one of whom is a CPA. Going forward, she simply pays the taxes, insurance and HOA dues. She does not need to pay monthly mortgage payments again for so long as she lives in her home.
On qualifying, for all intents and purposes, this was a Stated Income loan. As a matter of responsible underwriting, it was merely confirmed she had sufficient income to pay real estate taxes, insurance and HOA dues.
Due to adjustments* which FHA made to the HECM program in September 2013, an identical transaction as described in this post would presently require cash to close from the buyer of approximately $114,950.00.
On qualifying, for all intents and purposes, this was a Stated Income loan. As a matter of responsible underwriting, it was merely confirmed she had sufficient income to pay real estate taxes, insurance and HOA dues.
Due to adjustments* which FHA made to the HECM program in September 2013, an identical transaction as described in this post would presently require cash to close from the buyer of approximately $114,950.00.
For additional facts on the FHA Reverse Mortgage program (HECM), you may wish to click on this link: Reverse Mortgage Facts. Further discussion and illustration on the H4P is available on this link: What Is A Purchase Reverse Mortgage?
TIPS: There are no concessions allowed by sellers, builders or agents; this includes any personal property (such as appliances). In addition, the buyer must pay for the title insurance. There can be no repair set-asides; all repairs, where major property deficiencies threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property, must be completed by the seller prior to closing. Another unique feature of this program is to set your closings for about 10:00 AM and not later than 11:00 AM to help make sure the H4P funds the same day as the closing. On the closer, few are experienced with the H4P, most are experienced with the traditional reverse mortgage and think the H4P is the same. It is not. Given the buyer is paying for the title insurance, I suggest we use a closer well-trained in the HP. I have such a closer.
Finally, although a rare circumstance, should a buyer have two FHA Case Numbers open, the non-purchase case number must be cancelled prior to final loan approval. As of this post, FHA will not allow an application to be taken until the Certificate of Occupancy has been issued.
If a non-borrowing spouse is involved in the transaction, the non-borrowing spouse (NBS) may not be a party to the real estate purchase contract. For more information on the NBS you may wish to read: Reverse Mortgages and the Under-Age 62 Spouse.
[*HUD Mortgagee Letter 2013-27]
Update: There are market and borrower favorable changes pending application to the H4P on September 19, 2017. When they go into effect, this posting will be updated to reflect the changes.
Notice: The information provided is not intended to be an indication of loan approval or a commitment to lend. Additional program guidelines may apply. Information is subject to change without notice.
Disclaimer: This article does not represent that any of the information provided is approved by HUD or FHA or any US Government Agency.
Financially Speaking™ James Spray, RMLO, CNE, FICO Pro |CO LMO 100008715 / NMLS 257365 |Published: April 3, 2014 ~ Updated: February 6, 2017
Notice: The information on this blog is opinion and information. While I have made every effort to compose and link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.
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