Did you know condominiums are an eligible property type for the reverse mortgage loan program? If you’re a condo owner looking to find greater financial flexibility in retirement, a reverse mortgage might be the right option for you!
A reverse mortgage is a specially designed loan for homeowners aged 62 and above. It works by allowing you to convert a portion of your home’s equity into income tax-free1 cash without having to sell the home or make regular monthly mortgage payments. You must, of course, continue to pay your property taxes and insurance, and maintain the home. Unlike a traditional mortgage where you must begin repaying the loan right away, you do not have to repay funds received until you sell your home, move out, or pass away.
While condos in general are an eligible property type, not all condos are eligible for all types of reverse mortgages. The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM) loan which is insured by the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD). In order for your condo to qualify for a HECM, it must first be approved by the FHA. This means that the condo must meet certain criteria defined by HUD, such as having a certain percentage of owner-occupied units and a low percentage of delinquent dues.
How do you know if your condo is approved?
To see if your condo complex is already approved by the FHA, you can search HUD’s database of all FHA-approved condominiums. On this publicly accessible database, you can search for your condo by state, county, or even the property’s name. If your condo is already FHA-approved, you can apply for an FHA-insured HECM reverse mortgage. And, with a HECM, you can choose to receive your loan proceeds as a lump sum, a growing line of credit, a series of monthly payments, or a combination of these. Even better? You can also choose to use your proceeds however you’d like!
Here are just a few examples of how borrower can use funds from a reverse mortgage:
- Pay off an existing mortgage
- Supplement a fixed retirement income
- Pay off high-interest debt
- Age in place comfortably in the home you love
- Finance home improvements
- Cover medical expenses like long-term care
If you decide to take out a reverse mortgage on your condo, there are a few things you should consider:
- Eligibility: In addition to having an FHA-approved condo and being at least 62 years old, you must have enough equity in your home to qualify for a reverse mortgage.
- Cost: Reverse mortgages come with upfront costs, including origination fees, closing costs, and mortgage insurance premiums. In many cases, these costs can be wrapped up into the loan, but it’s important to factor them into your decision.
- Repayment: When you take out a reverse mortgage, you are essentially borrowing against your home equity. This means that when you sell your home or pass away, the loan must be paid back.
- Heirs: It is important to consider how a reverse mortgage might affect your heirs. If you pass away and they want to keep the home, they can either pay off the entire loan balance or 95% of the home’s appraised value—whichever is less. If they do not want to keep the home, they can sell it (and keep the difference after repaying the lender if there is money left over) or simply deed it to the lender.
- Benefits: Because reverse mortgage proceeds are not considered income by the IRS, Social Security and Medicare benefits generally won’t be affected. However, if you receive any government benefits, such as Medicaid or Supplemental Security Income (SSI), a reverse mortgage could affect your eligibility for these programs. It’s important to speak with a financial advisor to discuss the potential impact on your benefits.
- Lender: We know you have options when it comes to choosing a lender.At Longbridge Financial, customer service is our highest priority! We feel so strongly about going above and beyond to ensure your total satisfaction that we’ve put our list of commitments in writing.
What if your condo is not FHA-approved?
It’s not uncommon to find that condos are not FHA-approved so don’t be discouraged – there are different ways your complex or unit can obtain approval! But before we dive into the different pathways to FHA approval, it’s important to mention there are non-FHA reverse mortgage loans available for qualified borrowers who are interested in accessing their homes equity and either can’t or have chosen not to pursue FHA approval.
Longbridge Platinum is a proprietary, non-FHA jumbo reverse mortgage for homeowners aged 55 and above2 that can offer more cash than a standard reverse mortgage depending on your home’s value. Plus, our Platinum line of credit option compares favorably and offers more flexibility than a standard Home Equity Line of Credit (HELOC).
Here are some of the ways borrowers use the power of Platinum to their advantage, just like a HECM:
- Pay off an existing mortgage and other debt to eliminate monthly mortgage payments. (Borrowers must continue to pay their property taxes and insurance and maintain the home.)
- Access a lump sum of cash for home renovations, medical expenses, and more.
- Use the line of credit option to secure a safety net for the future.
- Buy a house or condo that’s better sized or suited to your lifestyle.
Back to FHA-insured reverse mortgages! There are two pathways that can be taken to obtain FHA approval. The first is to ask your condo association to go through the approval process for the complex as a whole. The second is to seek single-unit condo approval for your individual condo.
Condo Complex Approval: If you find that your condo complex had a certificate of FHA approval previously, it’s a sign you’re your association may consider FHA approval in the future. The first step in this process is to open a discussion with your association to see if are willing to allow reverse mortgages in the complex by obtaining FHA approval.3 You can also contact a lender who can broach the subject with your association on your behalf.
The first step toward condo complex approval is meeting the requirements HUD assesses during their approval process.4 Here is a general list of what HUD will assess:
- The complex must have at least 50% of its units owner-occupied.
- Less than 15% of owners in the complex can be more than 60 days late on dues.
- There must be no pending litigation against the complex.
- Minimum insurance requirements mut be maintained by the complex.
- The complex must be approved by FHA.
Single-Unit Condo Approval: In the event that your condo association is unwilling to devote the time and effort required to obtain FHA approval for the entire complex, you can take the alternate route of receiving single-unit approval. The single-unit approval option allows an FHA-insured mortgage to fund, without the entire complex obtaining FHA approval. Single-unit approvals require that the unit is located in a condo complex that is not FHA-approved, is complete and ready for occupancy, is in a complex with at least five dwelling units, and is not a manufactured home. The condo complex that the unit is a part of must also meet a subset of requirements.5
What are the property requirements for approval?
While there is a long list of specific standards a condo complex must meet to be approved by the FHA, the guidelines focus on three6 main areas:
- Safety: The property should protect the health and safety of the occupants, including whether there are any hazards present (e.g., asbestos, contaminated soil, proximity to waste). The property must also provide safe and adequate access for pedestrians and vehicles, and the street must have an all-weather surface so that emergency vehicles can access the property under any weather conditions.
- Security: The home should be a secure investment, meaning that it will retain its value throughout the loan.
- Soundness: The home must be sound, without physical deficiencies or conditions affecting its structural integrity. Any defective structural conditions and any other conditions that could lead to future structural damage must be remedied before the property can be sold. These include defective construction, excessive dampness, leakage, decay, termite damage, and continuing settlement.
We’ve covered a ton of details about the different ways condo owners can go about obtaining a reverse mortgage loan and it can understandably seem overwhelming. The good news is you don’t have to do it all on your own! The Longbridge team is here to help answer your questions and work with you to find right solution for your individual scenario.
If your condo is already FHA-approved and you’d like to explore how you can use your home equity to gain greater financial freedom, contact our team today to explore your options. If your condo is not yet FHA approved and you’re interested in obtaining approval, we can help. And if you’re simply interested in learning more about FHA-insured reverse mortgage loans or our non-FHA propriety reverse mortgage, Longbridge Platinum, our team is ready to assist.
Take the first step toward unlocking the power of your home and contact Longbridge today!