May gap financing or a bridge loan be used for a HECM purchase loan?

Home Equity Conversion Mortgage (HECM) borrowers may not obtain a bridge loan (also known as “gap financing”) or engage in other interim financing methods to meet the cash investment requirement or payment of closing costs needed to complete the purchase transaction.

This restriction includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitment that cannot be satisfied at closing.

Gap Financing Example:
A prospective HECM borrower completes the required reverse mortgage counseling and receives an estimate stating the required cash investment could be $25,000; and he/she has $20,000 in liquid assets but is short the remaining $5,000. He/she cannot take $5,000 from a credit card or obtain interim financing in order to deposit the money into his/her banking account in anticipation of being required to bring this amount to closing. However, he/she may withdraw the $5,000 from an insurance policy or retirement plan.

For additional information see:
Mortgagee Letter 09-11 is available at:  https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee
Federal Register 24 CFR 206.32(a) at:  https://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title24/24cfr206_main_02.tpl
 

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-01062