Ins and Outs of HECM for Purchase Transactions

A Reverse Mortgage for Purchase is like a traditional mortgage in many ways, but for real estate agents who have not been through the process, knowing how to handle this unique transaction is vital to both the realtor’s and borrower’s success.

In a Home Equity Conversion Mortgage (HECM) for Purchase transaction, there are four different parties involved in addition to the loan officer:

• the buyer (borrower);
• the buyer’s agent (realtor);
• the seller;
• and the listing agent (realtor).

As a realtor representing a HECM for Purchase buyer, the very first task is to make sure the borrower is working with a reverse mortgage loan officer. This can help speed up the process.

Next, you and the buyer can begin the new home search. In most cases, the borrower must go through FHA-required HECM counseling. Generally, this should be done before an offer is made on the property because some states have a mandatory waiting period between counseling and when a formal loan application may be completed.

Before counseling is completed but after the buyer’s pre-approval has gone through, the loan officer may collect financial assessment materials from the buyer.

Once counseling is completed, you can meet with the listing agent and seller to place an offer on the property and negotiate a price. Keep in mind that any negotiations must only be about the price of the home. The seller is not allowed to provide any concessions to the buyer when using a HECM for Purchase.

After the offer has been agreed upon, all parties meet to set up an escrow account (usually for 30 days). At this meeting with the loan officer, buyer, seller and listing agent, all parties will sign a purchase contract. The loan officer should examine the contract in detail before anyone signs it because there are certain terms that are not allowed when using a HECM for Purchase that may be allowed with a traditional forward mortgage.

When the purchase agreement is signed, the loan officer can put in the application for the reverse mortgage for purchase. This is also when the financial assessment materials will be submitted. Once confirmation is received from the loan officer that the loan has been approved, the transaction will be scheduled for closing.

If you would like to learn more about the reverse mortgage for purchase product and how a reverse mortgage can be used to purchase a home, contact us for more information.