You could be eligible for a reverse mortgage on a condo if you’re an older adult. Reverse mortgages allow homeowners who are 62 years of age or older to access their home equity while continuing to live in the property and keep the title.
Home equity conversion mortgages (HECMs), which are almost exclusively offered by FHA-approved lenders and guaranteed by them, make up the majority of reverse mortgages.
For a HECM, there are severe borrower criteria as well as guidelines governing which properties are eligible. If you have a different form of loan, get in touch with your lender or loan servicer if you have any questions or concerns about the restrictions that apply to HECMs.
- Reverse mortgage income enables retirees to pay for charges such as essential living expenses, medical expenses, and house maintenance.
- The majority of reverse mortgages are home equity conversion mortgages (HECMs), which are offered by FHA-approved lenders and guaranteed by the agency.
- Reverse mortgage payments are postponed until the last borrower sells the house, vacates, ceases making property maintenance payments (including taxes and insurance), or passes away.
- Borrowers are required to have at least 50% equity in their homes, be 62 years of age or older, and live there as their principal residence.
- Single-family houses, two- to four-unit residences with a borrower-occupied unit, and condos with FHA approval are all eligible types of real estate.
HECM Borrower Requirements
The most typical reverse mortgage, the HECM, has the following requirements to be met:
Your lender will also check your credit history, assets, monthly spending, and income. Additionally, they’ll check your payment history for hazard/flood insurance payments and real estate taxes.
HECM Property Requirements
For a property to qualify for a reverse mortgage, it must fulfill the minimal FHA property standards. Although there is a lengthy list of particular requirements, the rules are concentrated in three areas:
- Security—The building should ensure the tenants’ health and safety.
- Security—The house has to be a safe investment, meaning that its value will be maintained during the term of the loan.
- Soundness—The house must be in good physical condition and be free of any circumstances that might compromise its structural integrity.
Remember that only if your house is your primary residence can you get a reverse mortgage on a condo or any other form of property. If the house is your second or vacation home, it will not be eligible.
The following kinds of properties are qualified for HECMs, provided they satisfy the minimal property requirements:
- Single-family homes
- Duplexes, triplexes, and quadruples, as long as one of the apartments is used as the owner’s permanent home
- Property in proposed apartment complexes (PUDs)
- fabricated housing (built after June 15, 1976)
While some condos won’t be eligible for a reverse mortgage, the majority are. On the HUD website, you may search for condominium developments that have received FHA approval by area, name, or status.
Only newly built homes with a certificate of occupancy or an equivalent from the local government are eligible for a reverse mortgage.
Ineligible Reverse Mortgage Properties
Many different kinds of residences are eligible for a reverse mortgage, but some are not, including:
- Boarding houses
- Bed and breakfasts
- manufactured housing constructed prior to June 15, 1976
- manufactured houses without solid foundations or HUD certification markings
Can I Change My Mind After Closing on a Reverse Mortgage Loan?
You have three days after closing to terminate the loan without paying interest if you feel that having a reverse mortgage was a mistake. After that, you must repay the loan funds you have already received together with any interest that has accumulated.
How Much Can You Borrow on a Home Equity Conversion Mortgage (HECM)?
The youngest borrower’s age (or the non-borrowing spouse’s eligibility), the current interest rate, and the lesser of the home’s appraised value or $970,800—the limit set by the Federal Housing Administration (FHA) for home equity conversion mortgages (HECMs) in 2022—determine how much you can borrow.
A proprietary (or large) reverse mortgage may be an option if your property is worth more and you want to access additional equity. However, bear in mind that compared to HECMs with FHA insurance, private loans often have higher interest rates and fewer consumer safeguards.
What Happens If a Reverse Mortgage Lender Goes Out of Business?
The conditions of your loan won’t be altered if your lender goes out of business since a HECM is protected by government insurance. As long as you meet your loan commitments, you will continue to receive your pre-agreed payments.
The Bottom Line
For older folks who wish to enjoy community facilities and, sometimes, single-story living while spending less effort on house upkeep, condominiums might be an appealing housing alternative. Even if you own a condo, a reverse mortgage may help you finance your retirement. However, you should be aware that these loans come with high charges, such as mortgage insurance premiums and loan service fees.
Make careful to look around and evaluate the pricing of the loans you have available if you decide a reverse mortgage is the perfect choice for you. While mortgage insurance premiums are typically charged at the same rates by all lenders, other loan charges, such as origination, closing, and service fees, as well as interest rates, vary from lender to lender.
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