Downsizing With The HECM For Purchase Program

image Over the weekend, Redding News published an article about a couple who used the HECM for purchase program to downsize  and move to a warmer climate.  John and Susanne Ferry, both 62, have been trying to sell their home for three years but haven’t had any luck, even after reducing their listing from $700,000 to $498,000. 

There plan was to use the money from the sale of their home to downsize to a new location, but with the housing market where it’s at, it hasn’t worked out that way.  All of that changed when they found out about the HECM for purchase program which allowed them to purchase their dream retirement home last week on a house in Tuscany Villas, a 55-and-older community in north Redding.

Using a reverse mortgage purchase for purchase program, the Ferrys made a $150,000 down payment – money they took out of savings and some investments – and the reverse mortgage paid the $200,000 balance on the $350,000 home.  "It’s just wonderful. We wanted this house so much," Susanne Ferry said of their home in Tuscany Villas.

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The Ferrys worked with Chris Lamm of Security 1 Lending in Redding.  "Some seniors see the advantage in this program in being able to downsize into a smaller, less maintenance home and one that is more energy efficient," Lamm said.

Joe Rodola, a Housing and Urban Development reverse-mortgage counselor based in Redding, said he doesn’t know whether there will be a market in Shasta County for the reverse mortgage purchase program.  The median sales price of a home in Shasta County is under $200,000.

"It’s really an unknown market," Rodola said. "I couldn’t tell you how many seniors are sitting out there with $60,000 or $80,000 that would like to buy and still can’t afford to… A lot of it at this point is that nobody really knows it’s out there."

How to downsize with a reverse mortgage

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  • Great job, Chris.

    No doubt the counselor is right. We will need to find more avenues to let seniors know that HECMs can be used in a purchase transaction.

  • Just a little heads up on HECM for Homepurchase.

    If the current home is in foreclosure or has had a Notice of Default issued, FHA will not allow the borrowers to use HECM for Homepurchase for three years. The lender CAN make an exception for extenuating circumstances. However, if the borrower has enough cash as a down for the new home, they may not consider any extenuating circumstance as a hardship, as the borrower had enough assets to keep the current home from going into foreclosure in the first place.

    Also, if the borrower is planning on keeping the home and renting it out, they must have assets or income enough to afford the old mortgage payment.

    Its a whole new Reverse Mortgage world out there! Proceed cautiously.

  • Tamera –

    Thanks for posting, “If the current home is in foreclosure or has had a Notice of Default issued, FHA will not allow the borrowers to use HECM for Homepurchase for three years.” Where did you find this info? I have been searching for this type of information near and far… unfortunately, most US retirement communities are in declining markets, and I see this as a potentially common issue for seniors who are underwater in their homes and can’t sell.

  • I submitted a HECM for Homepurchase to underwriting. The borrowers current home was in default and they had two offers for short sale submitted to the lender. He was told by his RE Agent that he needed to be in default as a condition of the short sale.

    Here is the lenders announcement:

    “We have just clarified with HUD that a borrower who has had a foreclosure in the last 3 years, whether an FHA loan or not, is not eligible for a HECM for Purchase. This includes any foreclosure proceedings starting with an NOD having been filed all the way the sale.

    Given current market conditions and the HECM for Purchase being such an attractive option for borrowers wanting to downsize, it is important to properly counsel your borrowers as they determine how to handle the disposition of their current home. They need to understand the HECM for Purchase guidelines and to consult with their own counsel about how best to proceed.”

    They continued on specifically about the loan in question-

    “They (HUD) also specifically addressed extenuating circumstances on the file.
    Because the borrower has cash assets and could have kept the payments current, they stated that there were no circumstances that appeared to be extenuating.

    As for their rationale, they referred us back to the 4155:

    D. Previous Mortgage Foreclosure. A borrower whose previous principal
    residence or other real property was foreclosed or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for a new FHA-insured mortgage. However, if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit since the foreclosure, the lender may grant an exception to the three-year requirement. Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area.”

    I hope that this info helps a senior make the best decision.

    Tam

  • Thank you Tam…. This is very useful information.
    Appreciate you sharing this with us. Since I am
    conducting Realtor HECM presentations on the purchase
    program, this could save the senior, the seller, the
    Realtor, and myself a huge head ache….

    Virginia

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