Purchase Reverse Mortgage Guide for Real Estate Professionals

Learn the ins and outs of the HECM for purchase and how you can do more transactions per year by being the purchase reverse expert in your office.

Are your clients in a jumbo market? We have jumbo purchase reverse mortgages as well.

The Market

Older homeowners are buying homes. In fact, 25% of all home buyers are age 60 or older, according to the National Association of Realtors®. Of those buyers, 68% of those age 62 to 70 and 58% of those age 71+ finance the purchase of their home. Less than one percent of those are using a purchase reverse mortgage, even though it may be a more suitable solution.

Awareness of the HECM for purchase is low among home buyers and real estate agents, which is why becoming the expert on purchase reverse mortgages will help you to gain a competitive advantage and dominate in your market.

HECM for Purchase Overview

A Home Equity Conversion Mortgage (HECM) for Purchase is a reverse mortgage that allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.

Purchase Reverse Mortgage Borrower Requirements

  • Buyers must be 62 or older. A married couple can purchase a property using a reverse mortgage even if a spouse is under 62. The underage spouse would be considered either an eligible non-borrowing spouse, or in-eligible non-borrowing spouse, depending on the situation.
  • Down payment requirements.  A substantial down payment is required. The amount of down payment will depend of a few factors, but the range is between 29% and 63% of the purchase price.
    1. The age of the youngest homeowner, or NBS. The older the buyer, the less funds required
    2. The current interest rates
    3. The lesser of the purchase price or lending limit
  • Repayment requirements. With a reverse mortgage, there is no expectation of monthly repayment. Borrowers can make payments if they choose without penalty. In general, repayment is required once they sell the home, pass away, move out, or fail to meet their loan obligations. Borrowers are still responsible for payment of property taxes, homeowners insurance and any other property charge that goes along with owning the home.

Eligible Property Types

  • Single-family homes
  • FHA-approved condominiums
  • Townhouses or Planned Unit Developments (PUDs)
  • Two- to four-family homes that are
  • Manufactured homes meeting HUD guidelines
  • New construction

Who would make a good HECM for purchase candidate?

  • Looking to upsize, downsize, rightsize
  • Looking to move to a low-maintenance community
  • Moving to a more convenient neighborhood (closer to family, doctors, general services, etc.)
  • Someone who sold a home and doesn’t want to use all of their cash proceeds on the purchase of a new home
  • Someone whose current home doesn’t fit their lifestyle – for example, master bedroom is upstairs or down stairs, yard requires too much maintenance, the prefer one-story or need a home to better fit their physical needs
  • Someone looking to increase their purchasing power

How can you win more business by being the expert?

Knowing how to best use and market the purchase reverse mortgage can help you generate more sales. You will be able to earn their listing and purchase business. Additionally, your buyers will have more purchasing power with a reverse mortgage vs using all cash. Increased sales price equals higher commissions. In today’s competitive real estate market, having a buyer who can offer a bit more may help give you the competitive advantage over other buyers.

As a Realtor, how can I get started?

A great place to start is to get a title farm list of senior homeowners living in two story homes. We want to help older homeowners better age in place. Guiding them to a single story home can be a good insurance policy for the buyer against future physical health issues that would prevent them from using the stairs.

Questions to ask your potential buyers

  1. Do you prefer a one story home? 88% of seniors prefer single story.
  2. What accessibility features do you want or need? Is there a feature that would meet their specific needs? one-level, ramps, wider hallways and doorways, walk-in tubs/showers, etc.
  3. What proximity to amenities, public transport, family etc would you like to? Typically, they will want to be closer to retail space, parks, medical care facilities, transportation, walking trails, etc.

Questions you should ask your lender or broker partner on behalf of your clients

  1. Can you provide resources about HECM for Purchase that I can share with my clients?
  2. Tell me about your experience with HECM for Purchase loans and clients
  3. What are some typical challenges that HECM for Purchase buyers may experience during this process?
  4. Why is this type of loan beneficial for senior clients?

How to Write the Contract

When writing the purchase agreement, you should be sure to understand the following:

  1. Seller concessions are now allowed in 2023.
    1. Assistance with Borrower’s Fees: Now, parties involved in the home buying process (like sellers, agents, and builders) can contribute up to 6% of the home’s cost to help with various fees.
      Uses of the 6% Contribution: This amount can cover expenses such as origination fees, closing costs (including credit reports and appraisals), prepaid items, discount points, interest rate reductions, and the initial mortgage insurance premium. However, it cannot be used for counseling fees.
      Additional Funding Options: Apart from the HECM loan, you can use other sources like premium pricing, gifts, disaster relief grants, and employer assistance to fund your share of the purchase.
      Premium Pricing Credits: Deals from mortgage companies or third-party originators are exempt from the 6% limit, provided they are not the seller, agent, builder, or developer.
      Seller-Related Fees: Usual seller fees, such as real estate commissions and home warranty costs, are permitted and do not count towards the 6% limit.
      PACE Liens: Clearing a Property Assessed Clean Energy (PACE) lien by the seller is not considered an interested party contribution under this program.
      These updates make buying a home easier under the HECM for Purchase program by allowing more financial support from various sources.
  2. The contract cannot contain any rent back options.
  3. Since it’s an FHA loan, the contract must include the FHA Amendatory Clause
    and Real Estate Certification.
  4. The contract should not include personal property. HECM proceeds are for the purchase of Real Property.
  5. If the appraisal identifies any repair items, the seller must pay for and complete all repairs prior to the closing of the transaction.
  6. The HECM program is used in only a Primary Residence transaction.
  7. The contract cannot include real estate commission if the Realtor is also the Buyer (your broker can earn commission, broker must identify the realtor is not earning commission via Letter of Engagement)

What Next?

This guide on it’s own will not make you the expert. It is a great starting point. If you feel like the purchase reverse mortgage can help you gain more sales every year, we encourage you to reach out to us for a full training session. We are always available to answer any questions you have or run scenarios. Call 1-888-888-4834 with any scenario or training requests.