Reverse Mortgage Eligibility

  • All reverse mortgage borrowers must be 62 and older
  • Must own property and occupy as primary residence
  • Participate in an information counseling session
  • Must have sufficient equity in the property
  • Property must meet FHA property standards
  • Must maintain home with needed repairs, property taxes and insurance

Loan Amount Based On

  • Age of youngest borrower
  • Current interest rate
  • Lesser of appraised value or the FHA insurance limit
  • An Image Slideshow - Reverse Mortgage Educator
  • An Image Slideshow - Reverse Mortgage Educator
  • An Image Slideshow - Reverse Mortgage Educator

Reverse Mortgages: Types of Properties Allowed

Sometimes people assume that any kind of property will qualify for a reverse mortgage. This is not quite the case. For the most part, if you live in the property as your primary residence (more than 50% of the year there), you have sufficient equity, and you are at least age 62, you are eligible for a reverse mortgage (HECM).  These properties can include single family homes (attached or detached), 2-4 unit homes (as long as you occupy at least one of the units), condominiums, townhouses, and manufactured homes.  You can own other properties as rentals or vacation homes, but you cannot do a reverse mortgage on those, only on your principal residence. 

However, there are some significant exceptions to this. FHA has particular standards for housing that the appraiser is supposed to look for and sign off on. Some are small items that are easy to fix, like making sure there is a smoke detector in each bedroom and at least one common area like a hallway or living room. Some states (like California as of July 1, 2011) now require a carbon monoxide detector as well, at least one on each level of a home, but not inside a bedroom. The water heater should be affixed with two straps, not one.

Other items are not so easy to fix. There must be a heat source that is a permanent part of the home, not a portable heater. There cannot be any exposed wiring or visible foundation cracks. If the home was built prior to 1978 there can be no exterior chipping or peeling paint. There can be no leaking or signs of water damage, and no broken windows. If an appraiser finds any of these items out of compliance (and this is not necessarily a comprehensive list), the whole loan process comes to a halt, and will not restart until the appraiser returns to the home (for an additional fee) and takes pictures of the items that have been fixed.

Co-ops are currently not approved for reverse mortgages. A manufactured home may be approved, but must have been built after June 15, 1976, and must be on a permanent foundation.  If it was built as a mobile home, the original tags must still be in place, and it must be currently taxed as real property. You can't have two manufactured homes on the same property, unless one of them is not on a permanent foundation (and thus not technically real property at all). Although it is technically possible to do a reverse mortgage on a manufactured home in a rented space in a mobile home park, HUD requires a master lease of at least 99 years, or with an end date at least to the 150th birthday of the youngest borrower, and this must be a typcial lease for the area. Thus for all practical purposes doing a reverse mortgage for a manufactured home in a standard mobile home park is not doable in most parts of the country. There are some manufactured homes that are in condominiumized mobile home parks, and these will only work if the entire park is FHA approved.

This brings us to the issue of condominiums. A reverse mortgage on a condo, as with all other FHA loans, can only be done if the entire condo project is FHA approved. The vast majority of condo complexes are not FHA approved, for a variety of reasons. Most are not approved because the Homeowners Association (HOA) never took the time or effort to work through the requirements. How do you know if a project is FHA approved? Most HOAs or management companies will not know. If you have the formal name of the project, you can go to the FHA condo lookup website and check. Go to https://entp.hud.gov/idapp/html/condlook.cfm. Make sure the Approval Method is HRAP/DELRAP, then enter the zip code and hit send to see all the approved projects for that zip code.

Keep in mind that even if the project is approved this is no guarantee that the loan will go through. FHA still has a list of items that must be in compliance, and that includes such things as the percent of non-resident owners (no more than 50%), no owner can own more than 10% of the complex, there can't be any current lawsuits against the HOA, etc.

If the project is not approved (you don't find it on the website list), these days the HOA does not have to take the initiative or really do much work to get an FHA approval. All it takes is one resident who wants to do an FHA loan of some kind. That resident will work with the loan originator on the list of items needed, and will come to the HOA for those things only the HOA can provide. Once the application to FHA is approved, not only is the resident's home approved, the entire complex is approved, which is a benefit to everyone. The HOA should realize that with FHA approval comes happier residents, who have a greater variety of loan products to choose from, and more prospects for potential residents who want to purchase a unit using an FHA loan.

Some condo projects are not approved because they were once approved and that has lapsed. FHA approval has a limited life span, typically a few years, and once it has expired, the process needs to be redone. In the past, approvals were done for individual units, not for entire projects. This is why some residents might say they know a neighbor who did a reverse mortgage, now wonder why can't they do one. Maybe the neighbor's approval was from the time when only individual units were approved, or maybe they got in just under the wire for expiration of a prior approval.

Other condo projects are not approved because they attempted the approval process and were not successful. Make no mistake, the approval process is not an easy, rubber-stamp sort of thing, and it can take months to get an approval, going back and forth with the lender or FHA representative. Here is a short list of things a condo resident can inquire about with the HOA for a preliminary assessment of whether their project could obtain an FHA approval:

1. At least 51% of the total units in the project must be owner occupied.

2. No single entity can own more than 10% of the total units in the project, or no more than one unit if the total number of units is less than ten.

3. No more than 15% of the owners can be delinquent in their HOA dues.

4. Ten percent of the budget must be allocated for reserves and maintenance.

5. No legal action can be pending against the condominium association, officers, or directors.

6. There can be no special assessments pending.

If your condo project passes at least these 6 points, then you have a shot at proceeding with the attempt to get the project FHA approved. Your loan originator can provide you with a list of all the items needed, and it is a lengthy list, from obtaining recorded plat maps and condo site plans to various HOA financial documents and fidelity bond information, FEMA flood map, etc.

 
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