HUD’s recent update with the release of Handbook 4000.1, effective October 31, 2023, brings exciting news for those looking to use a reverse mortgage to purchase a new construction home. This expansion now encompasses Single Family 1-4 units, Condominiums, and Manufactured Homes, broadening the scope of possibilities for prospective homeowners.
Let’s delve into the specifics:
HECM Reverse Mortgage For Purchase Loan
A HECM Reverse Mortgage for purchase loan is a strategic tool that allows adults 62+ to increase buying power for a new home while eliminating required monthly mortgage payments. Like all HECM Reverse Mortgage loans, borrowers retain ownership and title to the property.
Key Advantages of Using a HECM Reverse Mortgage to Purchase a Home
- Move closer to family and loved ones
- Buy on the beach, the golf course, or wherever your dreams take you
- Downsize to reduce cleaning and maintenance needs
- Increase buying power for a home previously out of reach
- Eliminate your monthly mortgage payments
- Improve cash flow and preserve savings
Understanding New Construction
New Construction now encompasses three key categories:
- Proposed Construction: This refers to properties where no concrete or permanent material has been placed.
- Under Construction: Properties where permanent material has been placed, progress reaching up to 100% completion, but a Certificate of Occupancy has not yet been issued.
- Existing Less than One Year: Properties that are fully complete, with a Certificate of Occupancy issued, yet have never been occupied.
The stage of construction during the time of the appraisal dictates the loan processing procedures.
Important Considerations
- Single Unit Approval (SUA) doesn’t meet New Construction criteria if the subject property lies within an approved condominium project or an unapproved phase of a condominium project with at least one approved phase. If the subject property is within an unapproved condominium project or phase, HUD approval is a prerequisite before requesting a case number.
- Existing Construction Less than One Year – Previously Occupied pertains to properties that have been fully complete for less than a year, issued with a Certificate of Occupancy, and previously occupied. FHA treats this as Existing Construction, requiring only an appraisal demonstrating 100% completion.
- A Certificate of Occupancy is mandatory before closing for all new construction types, along with other relevant documentation.
- Interested parties like sellers, builders, or developers can contribute up to 6% of the sales price towards the borrower’s closing costs. Notably, interested parties cannot contribute to the cost of HECM Counseling.
This significant update opens doors to a wider array of possibilities for homebuyers, particularly those eyeing new construction properties. By aligning with these guidelines, both lenders and borrowers can navigate the HECM for Purchase process seamlessly, unlocking the potential for homeownership dreams to become a reality. Like with all Reverse Mortgage HECM loans, counseling is required from an approved company.
Resources
HECM Underwriting Manual [info.fareverse.com]