Reverse mortgages have been accessible to homeowners since 1961, but they have not been available to inhabitants of housing cooperatives (also known as “co-ops”). There are tight guidelines for both borrowers and properties, but reverse mortgages enable elderly homeowners to borrow against their home equity.
Reverse mortgages had previously been available to homeowners in New York State on one-, two-, three-, or four-unit houses or condos, but not on co-ops. The New York State Assembly did adopt a law making co-ops eligible for reverse mortgages, nevertheless, at the beginning of 2022. On May 30, 2022, the legislation will come into force, allowing residents of New York state to get reverse mortgages on co-op units. This is how it goes.
- With a reverse mortgage, homeowners who are 62 years or older may access their equity without having to sell their property or make regular payments.
- The debt is not payable until the last borrower sells the house, vacates it permanently, or passes away.
- A co-operative is a kind of residential property that is held by a company, and its occupants have voting rights among the corporation’s shareholders.
- Residents of New York state will be able to get private-label reverse mortgages on co-op residences starting on May 30, 2022.
- Co-ops are not eligible for home equity conversion mortgages (HECMs) from the Federal Housing Administration (FHA).
What Is a Reverse Mortgage?
With a reverse mortgage, homeowners who are 62 years and older may access the equity in their homes without having to sell or make regular payments. Instead, lenders provide borrowers a large amount, regular payments, or a line of credit (or some combination of the last two).
These loans may help retirees get the money they need for things like daily living costs, medical expenditures, and house maintenance. No loan payments are required until the final borrower sells the house, vacates the property, or passes away, in contrast to conventional forward mortgages.
Foreclosure may occur if the owner of a reverse mortgage does not uphold the terms of the loan by missing tax and/or insurance payments or neglecting to maintain the property.
Borrower Requirements for Co-op Reverse Mortgages
Reverse mortgages for co-ops are now referred to as “reverse co-operative apartment unit loans” under the new legislation. To be eligible for the loan, you must be at least 62 years old, which is also the minimum age requirement for most reverse mortgages. The youngest tenant in a co-op unit owned by tenants by the full or joint tenancy must be 62 years old or older. Furthermore, you have to
Each year on the anniversary of the reverse loan, the borrower must attest that they live in the co-op unit and that it serves as their primary dwelling.
Reverse Mortgage Lenders Must Protect Borrowers
Co-op residents of New York state who are 62 years or older may submit a reverse mortgage application starting on May 30, 2022. The new legislation, however, places the responsibility for borrowers’ protection on reverse mortgage lenders by requiring each lender to:
- Obtain a $100,000 surety bond to protect the lender from claims made if the borrower fails to fulfill their commitments.
- keep your capital at least $10 million (the lender can rely on its parent company to meet the minimum capital requirements).
- Describe the conditions of the reverse mortgage loan and how they adhere to HUD requirements as well as New York state law.
According to the criteria, lenders making reverse co-operative apartment unit loans must:
- Make the loan’s conditions and payback schedule clear.
- Encourage applicants to speak with the relevant authorities about the loan’s effects on their taxes and estate plans.
- Describe the prepayment and refinancing options for the loan.
- Inform the borrower with the interest rate and anticipated total interest for the loan.
- Describe the circumstances that might lead to the borrower defaulting on the loan.
A reverse co-operative unit loan is also non-recourse, which means that when it comes time to repay it, you may only owe what the stock certificate for the co-operative unit is worth.
Reverse Mortgage Loan Payout Options
You have three days after signing the reverse mortgage loan agreement to revoke the loan without paying interest. Following that, you have three major ways to get your reverse mortgage funds:
- Term Payment: For the specified number of months that you specify, the lender will make equal monthly payments to you.
- Tenure Payment: Until the loan is repaid in full or becomes due and payable, the lender will make equal monthly payments to you.
- Line of Credit: Until the credit line is used up, you borrow some money today while keeping some credit open for the future.
Shares or membership in the co-op that serves as the borrower’s primary home serve as collateral for reverse mortgages for co-ops.
When is a housing co-operative (co-op) reverse mortgage due?
The whole loan debt becomes due if you have a reverse mortgage on a housing cooperative (co-op) under the following scenarios:
- At least one of the debtors on the loan is no longer residing in the co-op as their primary home.
- You vacate the co-op owing to a medical or mental illness for at least a year without at least one other borrower making the co-op their primary home.
- You neglect to fulfill one (or more) of the loan’s requirements, including paying the maintenance costs, mortgage insurance premiums, or special assessment fees on a regular basis.
Can reverse mortgages have co-borrowers?
Can I get a home equity conversion mortgage (HECM) on a co-op?
Because the U.S. Department of Housing and Urban Development (HUD) only insures reverse mortgages that are secured by real estate, such as a home equity conversion mortgage (HECM) or a HECM for Purchase, co-ops are not eligible for reverse mortgages. Only private lenders provide reverse mortgages on cooperative properties since the federal legislation hasn’t changed.
The Bottom Line
Reverse mortgages may provide retirement income supplementation, which is beneficial if you’re on a fixed income. However, there are a number of charges associated with reverse mortgages, such as origination, mortgage insurance, closing, interest, and service fees. Before making any judgments, be sure to shop about and evaluate the prices of the loans that are accessible to you.
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