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a. HECM For Purchase (11/10/2026)
The HECM for Purchase program was designed to allow Borrowers to finance a new Principal Residence and obtain a HECM within a single transaction. Title to the Property must be transferred to the Borrower and the first and, if applicable, second liens are the only liens against the Property at the time of closing.
HECMs to be insured under the HECM for Purchase program must be processed and underwritten in accordance with the requirements in Origination through Post- closing/Endorsement, except where noted otherwise in this section.
i. Definition
HECM for Purchase refers to a transaction where the Borrower uses the HECM to finance the purchase of an existing one- to four-unit residence where the Borrower will occupy one unit as their Principal Residence.
Existing Construction refers to a Property that has been 100 percent complete for over one year or has been completed for less than one year and was previously occupied.
New Construction refers to Proposed Construction, Properties Under Construction, and Properties Existing Less than One Year as defined below:
• Proposed Construction refers to a Property where no concrete or permanent material has been placed. Digging of footing is not considered permanent.
• Under Construction refers to the period from the first placement of permanent material to 100 percent completion with no Certificate of Occupancy (CO) or equivalent.
• Existing Less than One Year refers to a Property that is 100 percent complete and has been completed less than one year from the date of the issuance of the CO or equivalent. The Property must have never been occupied.
ii. Initial Application Processing
The Mortgagee may take initial application either before or after the completion of HECM counseling.
iii. Principal Residence Requirements
HECM Borrowers may have only one Principal Residence at any one time. Current Borrowers that plan to sell their existing residence and use the HECM for Purchase program to obtain a new Principal Residence must pay off the existing HECM before the HECM for Purchase transaction can be insured.
Borrowers and Eligible NBSs, if applicable, must occupy the Property within 60 Days from the date of closing.
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iv. Initial Mortgage Insurance Premium Amount
The Initial Mortgage Insurance Premium (IMIP) must be financed or paid in cash. Any IMIP amount paid in cash is added to the total cash requirements due at closing.
v. Maximum Claim Amount
(A) Definition
The Maximum Claim Amount (MCA) is the lesser of the:
• appraised value as determined by the Collateral Risk Assessment;
• national mortgage limit; or
• sales contract price.
(B) Standard
The Mortgagee must determine the MCA at origination. When the collateral risk assessment determines that a second appraisal is required, the Mortgagee must use the lower of the two appraised values. The IMIP must not be taken into account in the calculation of the MCA. Closing costs must not be taken into account in determining the appraised value.
vi. Property Eligibility and Acceptability Criteria
(A) Types of Eligible Properties
The Borrower may finance the purchase of a one- to four-unit residence that will be used as their Principal Residence. The Property may be Existing Construction or New Construction. The following property types are eligible for HECM financing:
• Site Built Housing (one- to four-units, one-unit with an Accessory Dwelling Unit (ADU), or two- to four-units);
• Condominium units in Approved Projects or Legal Phases; and
• Manufactured Housing (one-unit or one-unit with an ADU).
Properties previously acquired through a contract for deed, land contract, or other similar arrangements must be treated as a purchase transaction when HECM funds will be used to satisfy outstanding payment obligations.
For Condominium Units seeking Single-Unit Approval, see Property Eligibility in Single-Unit Approval.
FHA treats the sale of an occupied Property that has been completed less than one year from the issuance of the CO or equivalent as an Existing Construction Property.
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(B) Construction and Inspection Requirements for New Construction HECM
Properties
Mortgagees must ensure New Construction HECM Properties are inspected to ensure compliance with FHA’s MPS and MPR. The construction status at the time of appraisal will determine the inspections that must be completed.
(1) Site Built Housing
(a) Proposed Construction
For Properties in the Proposed Construction status at time of appraisal, the Mortgagee must obtain one of the following prior to closing and provide the applicable documentation in the case binder:
• copies of the building permit (or equivalent) and CO (or equivalent); or
• three inspections (footing, framing, and final) performed by the local authority with jurisdiction over the Property or an ICC certified RCI or CI (for Modular Housing, footing and final only); or
• in the absence of such ICC certified RCI or CI, the Mortgagee may obtain three inspections (footing, framing, and final) performed by a disinterested third party, who is a registered architect, a structural engineer, or a qualified trades person or contractor, and has met the licensing and bonding requirements of the state in which the Property is located.
(b) Under Construction
For Properties in the Under Construction status at time of appraisal, the Mortgagee must obtain one of the following prior to closing and provide the applicable documentation in the case binder:
• copies of the building permit (or equivalent) and CO (or equivalent); or
• a final inspection issued by the local authority with jurisdiction over the Property or by an ICC certified RCI or CI; or
• in the absence of such ICC certified RCI or CI, the Mortgagee may obtain a final inspection performed by a disinterested third party, who is a registered architect, a structural engineer, or a qualified trades person or contractor, and has met the licensing and bonding requirements of the state in which the Property is located.
(c) Existing Less than One Year
For Properties in the Existing Less than One Year status at time of appraisal, the Mortgagee must obtain one of the following prior to closing and provide the applicable documentation in the case binder:
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• a copy of the CO (or equivalent); or
• a final inspection issued by the local authority with jurisdiction over the Property or by an ICC certified RCI or CI; or
• in the absence of such ICC certified RCI or CI, the Mortgagee may obtain a final inspection performed by a disinterested third-party, who is a registered architect, a structural engineer, or a qualified trades person or contractor, and has met the licensing and bonding requirements of the State in which the property is located.
(2) Manufactured Housing
(a) Proposed Construction
For Properties in the Proposed Construction status at time of appraisal, the Mortgagee must obtain one of the following prior to closing and provide the applicable documentation in the case binder:
• copies of the building permit (or equivalent) and CO (or equivalent); or
• two inspections (initial and final) performed by the local authority with jurisdiction over the Property or an ICC certified RCI or CI; or
• in the absence of a local authority with building code jurisdiction or ICC certified RCI or CI, the Mortgagee may obtain two inspections (initial and final) performed by a disinterested third party, who is a registered architect, a structural engineer, or a qualified trades person or contractor, and has met the licensing and bonding requirements of the state in which the Property is located.
(b) Under Construction
For Properties in the Under Construction status at time of appraisal, the Mortgagee must obtain one of the following prior to closing and provide the applicable documentation in the case binder:
• copies of the building permit (or equivalent) and CO (or equivalent); or
• a final inspection performed by the local authority with jurisdiction over the Property or an ICC certified RCI or CI; or
• in the absence of a local authority with building code jurisdiction or ICC certified RCI or CI, the Mortgagee may obtain a final inspection performed by a disinterested third party, who is a registered architect, a structural engineer, or a qualified trades person or contractor, and has met the licensing and bonding requirements of the state in which the Property is located.
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(c) Existing Less than One Year
For Properties in the Existing Less than One Year status at time of appraisal, the Mortgagee must obtain one of the following prior to closing and provide the applicable documentation in the case binder:
• a copy of the CO (or equivalent); or
• a final inspection performed by the local authority with jurisdiction over the Property or an ICC certified RCI or CI; or
• in the absence of a local authority with building code jurisdiction or ICC certified RCI or CI, the Mortgagee may obtain a final inspection performed by a disinterested third-party, who is a registered architect, a structural engineer, or a qualified trades person or contractor, and has met the licensing and bonding requirements of the State in which the property is located.
(3) Units in Condominium Project or Legal Phase (Existing Less Than One
Year)
The Mortgagee must obtain a CO or its equivalent.
(4) Required Documentation for New Construction Properties
The Mortgagee must obtain and include the following documents in the case binder:
• form HUD-92541, Builder’s Certification of Plans, Specifications, and Site;
• form HUD-92544, Warranty of Completion of Construction;
• a copy of the CO (or equivalent), if applicable;
• required inspections, as applicable: inspections performed by an ICC certified RCI or CI or a third-party,
who is a registered architect, a structural engineer, or a qualified trades person or contractor must be reported on form HUD-92051, Compliance Inspection Report, or on an appropriate state-sanctioned inspection form; and when a third party, who is a registered architect, a structural engineer,
or a qualified tradesperson or contractor, is relied upon for required inspections due to the absence of an ICC certified RCI or CI, a certification from such inspector that they are licensed and bonded under applicable state and local laws to perform the type of inspection completed must be included;
• a Wood Infestation Report, unless the Property is located in a county listed as not required on HUD’s “Termite Treatment Exception Areas” list: form HUD-NPMA-99-A, Subterranean Termite Protection Builder’s
Guarantee, is required for all New Construction. If the building is constructed with steel, masonry, or concrete building components with only minor interior wood trim and roof sheathing, no treatment is
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needed. The Mortgagee must ensure that the builder notes on the form that the construction is masonry, steel, or concrete. form HUD-NPMA-99-B, New Construction Subterranean Termite
Service Record, is required when the New Construction Property is treated with one of the following: Termite Bait System, Field Applied Wood Treatment, soil chemical termiticide, or Physical Barrier System is installed, as reflected on form HUD-NPMA-99-A. The Mortgagee must reject the use of post construction soil treatment when the termiticide is applied only around the perimeter of the foundation; and
• local Health Authority well water analysis and/or septic report, where required by the local jurisdictional authority.
(C) Documents to be Provided to Appraiser at Assignment
The Mortgagee must provide the Appraiser with a fully executed form HUD-92541, signed and dated no more than 30 Days prior to the date the appraisal was ordered.
For Properties 90 percent completed or less, the Mortgagee must provide a copy of the floor plan, plot plan, and any other exhibits necessary to allow the Appraiser to determine the size and level of finish of the house they are appraising.
For Properties greater than 90 percent but less than 100 percent completed, the Mortgagee must provide the Appraiser with a list of components to be installed or completed after the date of inspection.
(D) Property Considerations
New Construction must meet HUD’s Minimum Property Requirements (MPR) and Minimum Property Standards (MPS).
(E) Mortgagee Review of Appraisal
(1) Site Considerations
(a) Environmental
The Mortgagee must require corrective work to mitigate any condition that arises during construction that may affect the health and safety of the occupants, the Property’s ability to serve as collateral, or the structural soundness of the improvements.
(b) Operating Oil or Gas Wells
If a New Construction dwelling is located within 75 feet of an operating oil or gas well, the Mortgagee must reject the Property unless mitigation measures are completed.
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(c) Slush Pits
If a Property is Proposed Construction near an active or abandoned Slush Pit, the Appraiser must require a survey to locate the pit. The Mortgagee is to assess any impact on the subject Property.
(d) Special Airport Hazards
If a New Construction Property is located within Runway Clear Zones (also known as Runway Protection Zones) at civil airports or within Clear Zones at military airfields, the Mortgagee must reject the Property for insurance.
Properties located in Accident Potential Zone 1 (APZ 1) at military airfields may be eligible for FHA mortgage insurance provided that the Mortgagee determines that the Property complies with Department of Defense guidelines.
(e) Flood Hazard Areas
If any portion of the dwelling and related Structures or equipment essential to the Property Value is located in a Special Flood Hazard Area (SFHA), the Mortgagee must reject the Property, unless the Mortgagee:
• obtains a Federal Emergency Management Agency (FEMA)-issued final Letter of Map Amendment (LOMA) or final Letter of Map Revision (LOMR) that removes the Property from the SFHA; or
• obtains a FEMA National Flood Insurance Program (NFIP) Elevation Certificate (FEMA Form FF-206-FY-22-152) that documents that the lowest floor of the residential building, including the basement, and all related Structures or equipment essential to the Property Value are built at or above the 100-year flood elevation in compliance with the NFIP criteria; and
• ensures that the Elevation Certificate is completed based on finished construction.
The Mortgagee must include the LOMA, LOMR, or FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY-22-152) with the case when it is submitted for endorsement.
The Mortgagee must ensure that Flood Insurance is obtained when a FEMA NFIP Elevation Certificate (FEMA Form FF-206-FY-22-152) documents that the Property remains located within an SFHA.
(f) Individual Water Supply Systems (Wells)
The Mortgagee must ensure that new wells are drilled and are no less than 20 feet deep and cased. Casing should be steel or other casing material that is durable, leak-proof, and acceptable to either the local health authority or the trade or profession licensed to drill and repair wells in the local jurisdiction.
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A well located within the foundation walls of New Construction is not acceptable except in arctic or subarctic regions.
(i) Requirements for Well Water Testing
A well water test is required for all newly constructed Properties.
All testing must be performed by a disinterested third party. This includes the collection and transport of the water sample collected at the water supply source. The sample must be collected and tested by the local health authority, a commercial testing laboratory, a licensed sanitary engineer, or other party that is acceptable to the local health authority. At no time will the Borrower/owner or other Interested Party collect and/or transport the sample.
The following tables provide the minimum distance required between wells and sources of pollution:
Water Well Location Minimum Property Standards for New
Construction 24 CFR § 200.926d(f)(3)(iv)* 1 Property line/10 feet 2 Septic tank/50 feet 3 Absorption field/100 feet 4 Seepage pit or cesspool/100 feet 5 Sewer lines with permanent water-tight joints/10 feet 6 Other sewer lines/50 feet 7 Chemically poisoned soil/25 feet (reduced to 15 feet where ground surface is protected by impervious strata of clay, hardpan, or rock) 8 Dry well/50 feet 9 Other – refer to local health authority minimums * distance requirements of local authority prevail if greater than stated above
The following provides the minimum standards for Individual Water Supply Systems (wells):
Individual Water System Minimum Property Standards for New
Construction 24 CFR § 200.926d(f)(1) and (2) 1 Lead-free piping 2 If no local chemical and bacteriological water standards, state standards apply 3 Connection of public water whenever feasible 4 Wells must deliver water flow of five gallons per minute over at least a four-hour period
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(ii) Required Documentation
The Mortgagee must obtain a valid water test from the local health authority or a lab qualified to conduct water testing in the jurisdictional state or locality. When a well test is required, the report may not be more than 180 Days old from the Disbursement Date.
(g) Shared Well
(i) Definition
Shared Well refers to a well that services two to four homes where there is a binding Shared Well Agreement between the property owners that meets FHA requirements.
(ii) Standard
A Shared Well is permitted if the requirements in Shared Wells are met.
(F) Sales Comparison Approach: Comparable Selection
For Properties in new subdivisions, the selected comparable sales must include at least one sale outside the subdivision or project and at least one sale from within the subdivision or project.
(G) Seller Must Be Owner of Record
(1) Standard
To be eligible for a HECM insured by FHA, a Property must be purchased from the owner of record. The transaction may not involve any sale or assignment of the sales contract.
(2) Required Documentation
The Mortgagee must obtain documentation verifying that the seller is the owner of record.
Such documentation may include, but is not limited to:
• a property sales history report;
• a copy of the recorded deed from the seller; or
• other documentation, such as a copy of a property tax bill, title commitment, or binder demonstrating the seller’s ownership of the Property and the date it was acquired.
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(H) Restrictions on Property Flipping
Property Flipping is indicative of a practice whereby recently acquired Property is resold for a considerable profit with an artificially inflated value.
(1) Definition
Property Flipping refers to the purchase and subsequent resale of a Property in a short period of time.
Seller’s Date of Acquisition refers to the date the seller acquired legal ownership of that Property.
Resale Date refers to the date all parties have executed the sales contract that will result in the FHA-insured HECM for the resale of the Property.
(2) Standard
(a) Time Restriction on Transfers of Title
The eligibility of a Property for a HECM insured by FHA is determined by the time that has elapsed between the date the seller has acquired title to the Property and the resale date.
(b) Restriction on Resales Occurring 90 Days or Fewer after Acquisition
A Property that is being resold 90 Days or fewer following the seller’s date of acquisition is not eligible for an FHA-insured HECM.
(c) Exceptions to Time Restrictions on Resale
Exceptions to the 90-Day resale restriction are:
• Properties acquired by an employer or relocation agency in connection with the relocation of an employee;
• resales by HUD under its REO program;
• sales by other U.S. government agencies of Single Family Properties pursuant to programs operated by these agencies;
• sales of Properties by nonprofits approved to purchase HUD-owned Single Family Properties at a discount with resale restrictions;
• sales of Properties that are acquired by the seller by inheritance;
• sales of Properties by state and federally chartered financial institutions and Government-Sponsored Enterprises (GSEs);
• sales of Properties by local and state government agencies; and
• sales of Properties within Presidentially-Declared Major Disaster Areas (PDMDA), only upon issuance of a notice of an exception from HUD.
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The restrictions listed above and those in 24 CFR § 206.52(b) do not apply to a builder selling a newly built house or building a house for a Borrower planning to use FHA-insured financing.
(3) Required Documentation
The Mortgagee must obtain a 12-month chain of title documenting compliance with time restrictions on resales.
vii. Completion of Construction
Regardless of the inspection process used, the Mortgagee must certify on form HUD- 92800.5B, Conditional Commitment Direct Endorsement Statement of Appraised Value, that the Property is 100 percent complete and meets HUD’s MPR and MPS.
viii. Minimum Required Repairs
For HECM for Purchase transactions, the seller must complete all repairs necessary to:
• maintain the safety, security, and soundness of the Property;
• preserve the continued marketability of the Property; and
• protect the health and safety of the occupants.
The Appraiser must complete the appraisal as “Subject To” the completion of all required repairs.
ix. Sales Contract and Supporting Documentation
(A) Standard
The Mortgagee must not originate an insured HECM for the purchase of a Property if any provision of the sales contract violates FHA requirements.
The Mortgagee must ensure that (1) all purchasers listed on the sales contract are Borrowers, and (2) only those Borrowers may sign the sales contract. The Mortgagee may also list a Non-Borrowing Spouse (NBS) on the sales contract, but the NBS is not required to sign the sales contract.
An addendum or modification may be used to remove or correct any provisions of the sales contract that do not conform to these requirements.
(1) Amendatory Clause
If the Borrower does not receive form HUD-92800.5B before signing the sales contract, the sales contract must include or be amended before closing to include an amendatory clause that contains the following language:
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“It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise, unless the purchaser has been given, in accordance with HUD/FHA or VA requirements, a written statement by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement lender setting forth the appraised value of the property of not less than $___________*. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable.”
Mortgagees must ensure the actual dollar amount of the sales price stated in the contract has been inserted in the amendatory clause. Increases to the sales price require a revised amendatory clause.
An amendatory clause is not required in connection with:
• HUD Real Estate Owned (REO) sales; or
• sales in which the seller is: Fannie Mae; Freddie Mac; U.S. Department of Veterans Affairs (VA); United States Department of Agriculture (USDA) Rural Housing
Services; other federal, state, and local government agencies; a Mortgagee disposing of REO assets; or a seller at a foreclosure sale.
(2) Real Estate Certification
The Borrower, seller, and real estate agent or broker involved in the sales transaction must certify, to the best of their knowledge and belief, that (1) the terms and conditions of the sales contract are true and (2) any other agreement entered into by any parties in connection with the real estate transaction is part of, or attached to, the sales agreement.
A separate certification is not needed if the sales contract contains a statement that
(1) there are no other agreements between parties and the terms constitute the entire agreement between the parties, and (2) all parties are signatories to the sales contract submitted at the time the financial assessment is performed.
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(3) Property Assessed Clean Energy
Where the subject Property is encumbered with a Property Assessed Clean Energy
(PACE) obligation, the sales contract must include a clause specifying that the PACE obligation will be satisfied by the seller at, or prior to, closing.
(B) Required Documentation
The Mortgagee must obtain all signed copies of sales contract(s), including a complete copy of the final sales contract with any modifications or revisions agreed upon by the Borrower and seller.
The documentation must also include the amendatory clause executed by all parties, Real Estate Certification executed by all parties, and all other contract addenda.
(C) Ordering a Second Appraisal
The Mortgagee is prohibited from ordering an additional appraisal to achieve an increase in value for the Property and/or the elimination or reduction of deficiencies and/or repairs required.
The Mortgagee may order a second appraisal for transactions that are in accordance with requirements on Property Flipping.
x. HUD Required Disclosures
(A) Lead-Based Paint
If the Property was built before 1978, the seller must disclose any information known about lead-based paint and lead-based paint hazards before selling the house, in accordance with the HUD-EPA Lead Disclosure Rule (24 CFR 35, subpart A, and the identical 40 CFR 745, subpart F). For such Properties, the Mortgagee must ensure that:
• the Borrower has been provided the EPA-approved information pamphlet on identifying and controlling lead-based paint hazards (“Protect Your Family from Lead in Your Home”);
• the Borrower was given a 10-Day period before becoming obligated to purchase the home to conduct a lead-based paint inspection or risk assessment to determine the presence of lead-based paint or lead-based paint hazards, or the Borrower waived the opportunity;
• the sales contract contains an attachment in the language of the contract (e.g., English, Spanish) signed and dated by both the seller and purchaser: containing a lead warning statement as set forth in 24 CFR § 35.92(a)(1); providing the seller’s disclosure of the presence of any known lead-based
paint and/or lead-based paint hazards in the target housing being sold, or indication of no knowledge of such presence;
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listing any records or reports available to the seller pertaining to lead-
based paint and/or lead-based paint hazards in property housing being sold, or indication by the seller that no such records or reports exist; and affirming that the Borrower received the pamphlet, disclosure, and records
or reports above; and
• when any agent is involved in the transaction on behalf of the seller, the sales contract includes a statement that the agent has informed the seller of the seller’s Lead Disclosure Rule obligations, and the agent is aware of their duty to ensure compliance with the requirements of the Rule, and the agent has signed and dated the contract.
(B) Form HUD-92564-CN, For Your Protection: Get A Home Inspection
Mortgagees are required to provide form HUD-92564-CN, For Your Protection: Get a Home Inspection, to prospective homebuyers at initial application.
xi. Underwriting the Property
(A) Required Repairs
Where major property deficiencies threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the Property, all repairs must be completed by the seller prior to closing. A Repair Set-Aside is not permitted.
(B) Chain of Title
The Mortgagee must review the appraisal to determine if the subject Property was sold within 12 months prior to the case number assignment date. If the subject Property was sold within the previous 12 months, the Mortgagee must review evidence of prior ownership and for compliance with Restrictions on Property Flipping.
xii. Performing the Financial Assessment
(A) Credit History Requirements
(1) Types of Credit History
If a traditional credit report is available, the Mortgagee must use a traditional credit report.
If a traditional credit report is not available, the Mortgagee must develop the Borrower’s credit history using the requirements for non-traditional and insufficient credit.
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(a) Non-Traditional Credit Requirements
For Borrowers without a credit score, the Mortgagee must either obtain a Non-Traditional Mortgage Credit Report (NTMCR) from a credit reporting company or independently develop the Borrower’s credit history using the requirements outlined below.
(b) Non-Traditional Mortgage Credit Report
(i) Definition
A Non-Traditional Mortgage Credit Report (NTMCR) is designed to access the credit history of a Borrower who does not have the types of trade references that appear on a traditional credit report and is used either as:
• a substitute for a Tri-Merged Credit Report (TRMCR) or a Residential Mortgage Credit Report (RMCR); or
• a supplement to a traditional credit report that has an insufficient number of trade items reported to generate a credit score.
(ii) Standard
Mortgagees may use an NTMCR developed by a credit reporting agency that verifies the following information for all non-traditional credit references:
• the existence of the credit providers;
• that the credit was actually extended to the Borrower; and
• the creditor has a published address or telephone number.
The NTMCR must not include subjective statements such as “satisfactory” or “acceptable,” must be formatted in a similar fashion to traditional references, and provide:
• creditor’s name;
• date of opening;
• high credit;
• current status of the account;
• 12-month history of the account;
• required monthly payment;
• unpaid balance; and
• payment history in the delinquency categories (for example, 0x30 and 0x60).
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(iii)Independent Verification of Non-Traditional Credit
The Mortgagee may independently verify the Borrower’s credit references by documenting the existence of the credit provider and that the provider extended credit to the Borrower.
To verify the existence of each credit provider, the Mortgagee must review public records from the state, county, or city or other documents providing a similar level of objective information.
To verify credit information, the Mortgagee must:
• use a published address or telephone number for the credit provider and not rely solely on information provided by the Borrower; and
• obtain the most recent 12 months of canceled checks, or equivalent proof of payment, demonstrating the timing of payment to the credit provider.
To verify the Borrower’s rental payment history, the Mortgagee must obtain a rental reference from the appropriate rental management company, provided the Borrower is not renting from a Family Member, demonstrating the timing of payment of the most recent 12 months in lieu of 12 months of canceled checks or equivalent proof of payment.
(iv) Sufficiency of Credit References
To be sufficient to establish the Borrower’s credit, the credit history must include three credit references. The Borrower’s credit history must include at least one of the following:
• rental housing payments (subject to independent verification if the Borrower is a renter);
• telephone service; or
• utility company reference (if not included in the rental housing payment), including: gas; electricity; water; television service; or internet service.
If the Mortgagee cannot obtain all three credit references from the list above, the Mortgagee may use the following sources of unreported recurring debt to obtain the remaining one or two credit references needed:
• insurance premiums not payroll deducted (for example, medical, auto, life, or renter’s insurance);
• payment to child care providers made to businesses that provide such services;
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• school tuition;
• retail store credit cards (for example, from department, furniture, appliance stores, or specialty stores);
• rent-to-own (for example, furniture, appliances);
• payment of that part of medical bills not covered by insurance;
• a documented 12-month history of savings evidenced by regular deposits resulting in an increased balance to the account that: were made at least quarterly; were not payroll deducted; and caused no Insufficient Funds (NSF) checks;
• an automobile lease;
• a personal loan from an individual with repayment terms in writing and supported by canceled checks to document the payments; or
• a documented 12-month history of payment by the Borrower on an account for which the Borrower is an authorized user.
(2) Bankruptcy
(a) Chapter 7
A Chapter 7 bankruptcy (liquidation) does not disqualify a Borrower from consideration for a HECM for Purchase if, at the time of case number assignment, at least two years have elapsed since the date of the bankruptcy discharge. During the most recent two years, the Borrower must have:
• reestablished good credit; or
• chosen not to incur new credit obligations.
An elapsed period of less than two years, but not less than 12 months, may be acceptable, if the Borrower:
• can show that the bankruptcy was caused by Extenuating Circumstances beyond the Borrower’s control; and
• has since exhibited a documented ability to manage their financial affairs in a responsible manner.
(b) Chapter 13
A Chapter 13 bankruptcy does not disqualify a Borrower from consideration for a HECM for Purchase, if at the time of case number assignment, the bankruptcy has been discharged or at least 12 months of the payout period under the bankruptcy has elapsed.
If the bankruptcy has not been discharged, the Mortgagee must determine that, during the most recent 12 months, the Borrower’s payment performance has been satisfactory, all required payments have been made on time, and the Borrower has received written permission from the bankruptcy court to enter into the mortgage transaction.
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The Mortgagee must include the payment amount in the court-approved payment plan in the Borrower’s expenses when calculating Residual Income.
(c) Required Documentation
If the credit report does not verify the discharge date or additional documentation is necessary to determine if any liabilities were discharged in the bankruptcy, the Mortgagee must obtain the bankruptcy and discharge documents.
The Mortgagee must also document that the Borrower’s current situation indicates that the events that led to the bankruptcy are not likely to recur.
(B) Other Sources of Effective Income
Boarders of the Subject Property
The Mortgagee must obtain a copy of the executed written agreement documenting the intent of the Boarders to continue boarding with the Borrower.
(C) Asset Requirements – Acceptable Sources of Funds
(1) Earnest Money Deposit
The Mortgagee must verify and document the deposit amount and source of funds if the amount of the earnest money deposit exceeds 1 percent of the sales price or is excessive based on the Borrower’s history of accumulating savings, by obtaining:
• a copy of the Borrower’s canceled check;
• certification from the deposit-holder acknowledging receipt of funds;
• a Verification of Deposit (VOD) or bank statement showing that the average balance was sufficient to cover the amount of the earnest money deposit at the time of the deposit; or
• direct verification by a Third Party Verification (TPV) vendor, subject to the following requirements: the Borrower has authorized the Mortgagee to verify assets; the date of the completed verification conforms with FHA
requirements in Maximum Age of HECM Documents; and the information shows that the average balance was sufficient to cover
the amount of the earnest money deposit at the time of the deposit.
If the source of the earnest money deposit was a Gift, the Mortgagee must verify that the Gift is in compliance with Standards for Gifts.
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(2) Monetary Investment
(a) Definition
Monetary Investment refers to the amount Borrowers must provide to satisfy the difference between the Principal Limit and the sale price for the Property, plus any HECM-related fees that are not financed into the HECM, minus the amount of the earnest deposit.
(b) Source Requirements for the Borrower’s Monetary Investment
(i) Acceptable Monetary Investment Funding Sources
To satisfy the required monetary investment, Borrowers may use:
• Cash on Hand;
• cash from the sale or liquidation of the Borrower’s assets;
• HECM proceeds;
• Interested Party Contributions; and
• other Acceptable Sources of Funds.
A Family Member entitled to the commission may also provide it as a Gift, in compliance with standard gift requirements.
A Borrower who also serves as the licensed real estate agent on a HECM for Purchase transaction may use the real estate commission to satisfy the required monetary investment.
The Borrower may choose to provide a larger investment amount in order to retain a portion of the available HECM proceeds for future draws.
(ii) Unacceptable Monetary Investment Funding Sources
The Borrower may not use the following funding sources to satisfy the required monetary investment:
• Sweat Equity;
• Trade Equity;
• rent credit; or
• Premium Pricing.
(iii)Required Documentation
The Mortgagee must document that the Borrower’s monetary investment is from an acceptable monetary investment funding source and there will be no outstanding or unpaid obligations incurred by the Borrower in connection with the HECM for Purchase transaction.
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The Mortgagee must verify and document that the Borrower, or Family Member giving the commission as a Gift, is a licensed real estate agent, and is entitled to a Real Estate Commission from the Sale of the Subject Property being purchased.
(3) Interested Party Contributions
(a) Definitions
Interested Parties refer to sellers, real estate agents, builders, developers, Mortgagees, Third-Party Originators (TPO), or other parties with an interest in the transaction.
Interested Party Contribution refers to a payment by an Interested Party or combination of parties, toward the Borrower’s loan origination fees, other closing costs including any items Paid Outside Closing (POC), and prepaid items.
(b) Standard
Interested Parties, excluding Mortgagees and TPOs, may contribute up to 6 percent of the sales price toward the following items:
• loan origination fees;
• other closing costs;
• prepaid items; and
• payment of the IMIP.
No other items may be paid for by an Interested Party.
Mortgagees and TPOs are prohibited from making any Interested Party Contributions.
Exceptions
Fees required to be paid by a seller under state or local law or customarily paid by a seller in the subject property locality, including real estate agent commissions or fees, and the purchase of the Home Warranty policy by the seller are already permitted under 24 CFR § 206.44(c)(1) and will be excluded from the six percent interested party contribution limit.
Mortgagees may pay for services performed by a sponsored TPO if allowed under the Loan Origination Fee Calculation requirements.
The satisfaction of a PACE lien or obligation against the Property by the property owner is not considered an Interested Party Contribution.
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(c) Required Documentation
The Mortgagee must accurately document the total amount of Interested Party Contributions on the HUD-1 Settlement Statement, and reflected on the sales contract or applicable legally binding document. When a legally binding document other than the sales contract is used to document the Interested Party Contributions, the Mortgagee must provide a copy of this document to the assigned Appraiser.
xiii. Closing
(A) HUD-1 Addendum Closing Certifications
The Mortgagee must obtain the final HUD-1 Settlement Statement or similar legal document from the settlement agent. If the seller’s HUD-1 Settlement Statement or similar legal document is provided separately, the Mortgagee must obtain from the Closing Agent a copy of the final disclosure provided to the seller to keep in the case binder.
(B) Seller Certification
The seller must sign the certification to the Addendum to HUD-1 Settlement Statement.
(C) Inspection and Repair Requirements for HECMs Pending Closing in
Presidentially-Declared Major Disaster Areas
For HECM for Purchase transactions that have not closed, repairs must be completed prior to closing and the cost of repairs is the responsibility of the seller.
(D) Closing Costs and Fees
(1) Mandatory Obligations
The Mortgagee may use HECM proceeds to satisfy the Borrower’s Mandatory Obligations.
Mandatory Obligations include:
• IMIP;
• loan origination fee;
• HECM counseling fee;
• reasonable and customary amounts, but not more than the amount actually paid by the Mortgagee for any of the following items: recording fees and recording taxes or other charges incident to the
recordation of the insured HECM; credit report; survey, if required by the Mortgagee or the Borrower;
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title examination; Mortgagee’s title insurance; and fees paid to an Appraiser for the initial appraisal of the Property;
• delinquent Federal Debt;
• fees and charges for real estate sales contracts, warranties, inspections, surveys, and engineer certifications;
• the total amount of property tax and Flood and Hazard Insurance charges scheduled for payment during the First 12-Month Disbursement Period from a Fully Funded LESA. Mortgagees must use the actual insurance premium and actual tax amount;
• property tax and Flood and Hazard Insurance payments required by the Mortgagee to be paid at closing;
• the amount of the principal that is advanced toward the purchase price of the subject Property;
• other charges as authorized by the Secretary; and
• for adjustable rate HECMs: the total amount of property charge payments scheduled for payment
through the optional Borrower authorized option during the First 12- Month Disbursement Period; and the total amount of semiannual Disbursements scheduled to be made
during the First 12-Month Disbursement Period to the Borrower from a Partially Funded LESA.
(2) Property Assessed Clean Energy
The PACE obligation must be paid off in full by the seller prior to or at closing.
(3) Discount Points and Interest Rate Buydowns
The Mortgagee may not charge Discount Points.
Temporary and permanent interest rate buydowns are not permitted.
(4) Interested Party Contributions on the HUD-1 Settlement Statement
The Mortgagee may apply permissible Interested Party Contributions toward the Borrower’s closing costs and other fees required to obtain a HECM.
The Mortgagee must identify the total Interested Party Contributions on the front page of the HUD-1 Settlement Statement or similar legal document or in an addendum, and on Exhibit 2 – Schedule of Closing Costs. The Mortgagee must identify each item and fee paid by an Interested Party Contribution.
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(E) Mortgage and Note
All Borrowers and co-Borrowers must take title to the Property in their own name or a living trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments. In community property states, the Borrower’s spouse is not required to be a Borrower or a Co-signer. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under state law.
(F) Certificate of Occupancy
(1) Standard
The Mortgagee must obtain a copy of the CO, or its equivalent, if the date of the issuance of the CO or equivalent is less than one year before closing and the Property has never been occupied.
(2) Required Documentation
The Mortgagee must obtain a copy of the CO or its equivalent issued by the local jurisdiction, ICC RCI, or CI.
xiv. Post-closing and Endorsement
(A) Settlement Statement and Settlement Certification
If the HUD-1 Settlement Statement or similar legal document is provided separately, the Mortgagee must obtain from the Closing Agent a copy of the final statement provided to the seller to keep in the case binder.
(B) Form NPMA-33, Wood Destroying Insect Inspection Report
The Mortgagee must confirm that the HECM file contains the National Pest Management Association (NPMA) form NPMA-33, Wood Destroying Insect Inspection Report, or the state mandated infestation report, as applicable.
(C) Local Health Authority’s Approval for Individual Water and Sewer Systems
The Mortgagee must confirm that the HECM file contains the Local Health Authority’s approval for Individual Water Supply Systems and sewer systems, if applicable.
(D) HECM for Purchase New Construction Exhibits
The Mortgagee must confirm that the documentation requirements found in the HECM for Purchase product sheet are in the HECM file.
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