(ie: taxes, insurance, maintenance);
satisfy the monetary investment for the HECM for purchase transaction; and
continue to make the mortgage payment and tax and insurance payments on the existing mortgage.
The intent of this guidance is to prevent the practice known as “buy and bail” where the homebuyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage.
This guidance applies solely to a principal residence being vacated in favor of another principal residence and is not applicable to existing rental properties found on the tri-merged credit report and confirmed by tax returns (Schedule E of form IRS 1040).
Only properties where construction is completed, as defined in ML , are eligible for FHA insurance under the HECM for Purchase program. Loan proceeds may be used to satisfy outstanding payment obligations associated with a land contract, contract for deed or other similar purchase arrangements that will ensure the property, which will be used as collateral for the HECM, meets FHA’s title requirements. Those requirements, as provided in section 255(b)(4) of the National Housing Act and implemented in the HECM regulations at 24 CFR 206.45, provide, in part, that the HECM must be on real estate held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having a remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.
The following property types are ineligible for FHA insurance under the HECM for Purchase program:
Newly constructed principal residences where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority;
Bed and breakfast establishments;
Existing manufactured homes built before June 15, 1976; and
Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g. data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide or homes that are installed or occupied previously at another site or location.