Below is and excert from the Mortgagee Letter that was issed March 27, 2009 as guidance for the purchase of a home using a Reverse Mortgage. To qualify for a reverse mortgage in the United States, the borrower must be at least 62 years of age.
On October 20, 2008, the Federal Housing Administration (FHA) published Mortgagee Letter (ML) 2008-33, announcing the Home Equity Conversion Mortgage (HECM) for Purchase program which allows qualifying seniors to use HECM proceeds for the purchase of a new principal residence. Since its publication, the reverse mortgage industry has sought additional guidance concerning HECM purchase transactions. This ML contains a compilation of guidance issued under ML 2008-33 and new guidance for the HECM for Purchase program and, therefore, supersedes ML 2008-33.
The Housing and Economic Recovery Act of 2008 (HERA) provides HECM mortgagors the opportunity to purchase a new principal residence with HECM loan proceeds. Section 2122(a)(9) of HERA amends section 255 of the National Housing Act to authorize the Department of Housing and Urban Development (HUD) to insure HECMs used for the purchase of a 1 to 4 family dwelling unit. Accordingly, eligible mortgagors now have the opportunity to purchase a principal residence with HECM loan proceeds. HECM for Purchase transactions, for which the FHA case number is assigned on or after the date of this ML, must satisfy existing HECM program requirements and the provisions of this ML.
The Federal Housing Administration (FHA) defines "HECM for Purchase" as a real estate purchase where: title to the property is transferred to the HECM mortgagor; the mortgagor will occupy the property as a principal residence; and, at the time of closing, the HECM first and second liens will be the only liens against the property. HECM mortgagors must occupy the property within 60 days from the date of closing. Lenders are required to ensure all outstanding or unpaid obligations incurred by the prospective mortgagor, in connection with the HECM transaction, are satisfied at closing.