HECM and New Construction

FHA relaxes the requirements on Certificate of Occupancy requirements! September 29, 2017 FHA said they would now allow lenders to take applications for a HECM (reverse mortgage) without a certificate of occupancy and before the completion of reverse mortgage counseling.

This is a long awaited change and a very good change. As virtually any other loan program, a loan application could be taken prior to the home being completed. Then, upon the completion of the home, a Certificate of Occupancy was issued by the governing body where the home is; the city or county for example. The lender would then order a final inspection to insure the home was complete. This meant that within a relatively short timeframe, once the house was complete, the lender could close.

But the HECM was always different. A lender couldn’t even begin the application process until the home was completed; a certificate of occupancy was issued. This meant that for any builder that was selling a home to a senior couple using a reverse mortgage, the closing process was substantially longer. Now with this announced change from HUD, the lenders now simply need to receive the documentation “at any time prior to endorsement” (prior to closing).

Translated, the reverse mortgage world just came up to speed with the rest of the lending world regarding new construction. This change, coupled with the changes that occurred on October 2nd, make using a reverse mortgage for purchase (H4P) the “sweet spot” in reverse mortgage lending.

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