# Presentation: 040118

## HECM for Purchase ProgramTraining for HECM counselorsDecember 18, 2008

## Background

- Background

- Allows seniors age 62 or older to buy a new home with HECM loan proceeds
- Benefits senior because transaction only involves one set of closing costs
- Created by the Housing and Economic Recovery Act of 2008

## Highlights of HECM for Purchase Program

**Highlights of HECM for Purchase Program**

- Can purchase existing1- to 4 unit property
- Property must serve as principal residence
- Only HECM first and second liens against property
- Must provide monetary investment  at closing from allowable funding source
- Must occupy property within 60 days

## What are eligible property types? 

**What are eligible property types?**

- _Eligible Properties_
- Same as traditional HECM loans
- Newly constructed properties must have certificate of occupancy
- _Ineligible Properties_
- Cooperative units
-  Manufactured housing built before 1976 and lacking permanent foundation
- Bed and breakfast properties, boarding houses

## What is the monetary investment requirement?

**What is the monetary investment requirement?**

- The difference between principal limit and sales price for the property
- Also includes any HECM loan related fees that are not financed or offset by other allowable funding source
- Borrowers may provide larger investment amount in order to retain portion of HECM proceeds for future draws

## What are allowable funding sources?

**What are allowable funding sources?**

- Borrower may only use their own money or money obtained from sale of assets
- Withdrawal from borrower’s savings or retirement account are acceptable.
- No gifts.  No personal loans, cash withdrawal from credit cards, bridge loans, subordinate liens, seller financing or any other lending commitments
- Lenders are required to verify source of funds

## What funding sources are ineligible?

- Gifts
- Loan discount points
- Interest rate buy downs
- Closing cost assistance
- Builder incentives
- Seller contributions or seller financing
- Credit card advances
- Secured or non-secured loans from another asset (car, home equity)

## How to help the client avoid potential pitfalls

**How to help the client avoid potential pitfalls**

- Evaluate the client’s financial situation
- Does the client have resources for monetary investment?
- Is it an allowable source?
- Educate client about homebuying process
- Educate client on obligations
- Taxes and insurance
- Homeowner association fees
- Home maintenance costs

## Role of Real Estate Agent

**Role of Real Estate Agent**

- Who is the agent working for?
- Ask agent to disclose information about business relationships
- Educate client on role of buyer’s agent
- Client should consider written agreement

## Counsel clients to get a home inspection
Evaluates the physical condition: structure, construction, and mechanical systems

Identifies items that need to be repaired or replaced

Estimates the remaining useful life of the major systems, equipment, structure, and finishes

Buyers should be at the inspection to ask questions about the condition and maintenance

**Selecting a Home for Purchase**

- Counsel clients to get a home inspection
- Evaluates the physical condition: structure, construction, and mechanical systems
- Identifies items that need to be repaired or replaced
- Estimates the remaining useful life of the major systems, equipment, structure, and finishes
- Buyers should be at the inspection to ask questions about the condition and maintenance

## What if home needs repairs?

**What if home needs repairs?**

- Required Repairs
- Health and safety or structural integrity issues
- Must be completed prior to closing by seller
- Include in purchase agreement
- Buyer cannot put any money into repairs before they own the home

## Writing an offer

**Writing an offer**

- Must state *offer contingent on satisfactory inspection conducted by qualified inspector*
- Borrower may want attorney to review – increases costs but may be worth it
- Client may cancel transaction at any time prior to closing
- May affect earnest money deposit

## Discuss closing costs

**Discuss closing costs**

- Standard HECM closing costs plus -
- Recordation fees
- Transfer taxes
- Varies from state-to-state

## Other issues

**Other issues**

- Educate client that there is no three day right of rescission unlike traditional HECM

## Pay extra attention

**Pay extra attention**

- First time homebuyers
- Inappropriate source of funds
- Possible property flipping scam
- Client being rushed to closing

## Questions?