May 20, 2011
The FHA Home Equity Conversion Mortgage, also known as a reverse mortgage, is for borrowers age 62 or older who want to borrow against the equity built up in their homes. There are a variety of requirements for this unique FHA loan product which allows eligible borrowers to make no mortgage payments, collect cash against the equity in the home or get a line of credit. The loan is paid off when the borrower dies or sells the property.
There is a variation of the HECM loan known as a HECM Purchase loan. According to the FHA, HECM Purchase Loans allow “seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.”
FHA HECM loan requirements include using the home as the primary residence, staying current on property taxes and other requirements, etc. But before a borrower can be approved for a HECM Purchase loan, the nature of the property to be purchased must be examined–some property types cannot be approved. Co-op units are not eligible, for example, nor are boarding houses. Bed and breakfasts aren’t eligible for HECM loans, nor are manufactured homes built before June 15, 1976.
In some cases, the reason the excluded properties are on the ineligible list is fairly obvious. HECM Purchase loans are designed to let qualified borrowers buy private property to be used as a primary residence. Buying a commercial property such as a bed and breakfast would fall outside the bounds of that concept. But not all the types of property on the ineligible list have commercial uses.
Some, like manufactured homes build before June 15, 1976, are about construction standards or compliance to specific requirements. One type of property ineligible for an FHA HECM Purchase loan? Existing manufactured homes built after June 15, 1976 that, according to FHA requirements, “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.”
Another type of ineligible property is defined as “newly constructed principal residences where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority”.
Borrowers who aren’t sure about the nature of the property they want to buy with a HECM purchase loan, or whether such property qualifies should contact the FHA and speak to their lender to clear up any confusion or learn more about the requirements.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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