HUD Revises Mortgagee Letter About Reverse Mortgage Home Purchase
Last Updated on Wednesday, 31 December 1969 15:59 Written by Veagure Vanrock Saturday, 10 January 2009 01:54
A few months ago, HUD announced 2 wonderful things regarding reverse mortgages. The first attention-grabber was that a home can be bought using the reverse mortgage.A few months ago, HUD announced 2 wonderful things regarding reverse mortgages. The first attention-grabber was that a home can be bought using the reverse mortgage.
Prior to this notice, using the reverse mortgage as a means to refinance was the only option seniors had.
But that's all changed. A reverse loan is now as functional as a regular loan, but the borrower does not have to repay the bank periodically. This is obviously a significant distinction to seniors.
The second great thing I read nearly took me off my seat; it was how they would figure the loan. The appraised value of the home would be the factor detemining the actual loan amount, not the actual sale price.
While the lender will take various things into account, the most important is the value of the house as determined by the appraisal.
The mortgagee letter stated basically the same thing for home purchases. What you should understand is home purchase mortgage loan to values are normally based upon the sale price or the appraised value, whichever is lower.
For a reverse mortgage purchase to be based upon value only sounded almost too good to be true.
Here's how it could play out. Say a borrower scrounges around and finds an amazing house really cheap. Its on the market for almost half of what it should be. In this circumstance, at closing the senior might not have to front anything out of pocket.
The Dept. of Housing and Urban Development doesn't just give things away. They arent considered strict by any means, but they want to make sure that there is a down payment. The senior must give something in order to get something.
Well guess what? HUD agrees with me. It is too good to be true. They eliminated that clause and have reverted to traditional lending practices.
It's interesting HUD takes seemingly forever to put out their mortgagee letters to us lenders. You'd think they have teams of lawyers working day and night making sure the thing is right the first time.
And yet, I received this just a couple of months before the change took place.
In summary, the official basis of the reverse loan, when used to buy a new home, will be the lesser of the price or value.
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