Eligibility criteria revised for senior homebuyers using reverse mortgages
The Federal Housing Administration (FHA) announced revisions to its Home Equity Conversion Mortgage (HECM) for purchase program, backtracking on some proposed changes after industry stakeholders raised concerns about potential negative impacts on borrowers.
In a Federal Register Notice and accompanying Mortgagee letter, the FHA said it will proceed with allowing property sellers, real estate agents, builders, and developers to contribute to closing costs for borrowers using the HECM for purchase program.
However, the agency reversed course on two key proposals from last October that were set to take effect on April 29.
"At this time, FHA will not allow mortgagees and third-party originators to make such interested party contributions, nor will it allow premium pricing to qualify as an eligible funding source to meet the borrower's minimum required investment," the notice stated.
The HECM for purchase program enables eligible seniors to finance the purchase of a new primary residence and obtain a reverse mortgage in a single transaction. Like traditional reverse mortgages, borrowers are not required to make monthly mortgage payments as long as they live in the home, but they must cover property taxes, insurance, maintenance costs, and fees.
"A HECM for Purchase loan can be difficult to obtain since the borrower is buying a new home, which will have limited equity, and therefore, requires the borrower to put forward an often significant minimum required investment," the FHA said.
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The agency believes "allowing some interested parties to contribute to closing costs is a prudent way to expand access to the program" while ensuring it remains safe and borrowers are fully protected.
The notice also restores the FHA's previous policy prohibiting the use of discount points and interest rate buydowns as allowable closing costs.
The revised policies and updated model loan documents are effective for all HECM case numbers assigned on or after April 29.
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