withdrawals from credit cards, seller financing and any other lending commitment that cannot be satisfied at closing.
Gap Financing Example
A prospective HECM mortgagor completes the required reverse mortgage counseling and receives an estimate stating the required monetary investment could be $25,000. The prospective HECM mortgagor has $20,000 in liquid assets but is short the remaining $5,000. The prospective HECM mortgagor cannot take $5,000 from a credit card or obtain interim financing in order to deposit the money into his/her banking account in anticipation of being required to bring this amount to closing. However, the prospective HECM mortgagor may withdraw the $5,000 from an insurance policy or retirement plan.
In accordance with regulatory requirements at 24 CFR 206.105 and 206.111, lenders are required to remit an initial mortgage insurance premium of 2 % of the maximum claim amount within 15 days of closing.
The HECM refinance authority is only applicable when the property that serves as collateral for FHA-insurance remains the same. Therefore, existing HECM mortgagors who participate in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and lenders must enter the transaction into FHA Connection as a new HECM.
Lenders must examine HUD’s Limited Denial of Participation List (LDP) and the General Services Administration’s (GSA) Excluded Parties List System to determine if the name of any party to the transaction including, but not limited to, the seller, real estate agent, or builder, appears on either list. The reverse mortgage will not be eligible for mortgage insurance if the name of any party to the transaction appears on either list.
HUD-approved housing counseling agencies that have been approved to provide reverse mortgage counseling must counsel those who anticipate using the HECM for Purchase option on all topics covered in this mortgagee letter and other HUD requirements and issuances.
In most cases the right of rescission will not be applicable to HECM for purchase transactions. However, there may be instances when the loan would be rescindable. For example, if the mortgagor intends to finance a balloon payment due under a land sale contract, the three day right of rescission would be applicable. FHA does not have purview over right of rescission