Can I Get a Reverse Mortgage on a Condo?
If you’re an older adult, you may be able to get a reverse mortgage on a condo. A reverse mortgage lets homeowners age 62 and up access their home equity while remaining in the house—and retaining the title. Nearly all reverse mortgages are home equity conversion mortgages (HECMs), insured by the Federal Housing Administration (FHA) and sold by FHA-approved lenders.
There are not only strict borrower requirements for obtaining a HECM, but also rules defining which properties are eligible.
The rules described below apply to HECMs, so if you have a different type of loan, contact your lender or loan servicer if you have questions or concerns.
- A reverse mortgage provides income to help retirees cover costs like basic living expenses, medical bills, and home repairs.
- Most reverse mortgages are home equity conversion mortgages (HECMs), insured by the Federal Housing Administration and sold by FHA-approved lenders.
- Reverse mortgages aren’t due until the last borrower sells the home, moves out, stops paying property charges (e.g., taxes and insurance), or dies.
- Borrowers must be 62 or older, have substantial equity in the home, and live in the home as a primary residence.
- Eligible properties include single-family homes, two-to-four-unit homes with a borrower-occupied unit, and FHA-approved condominiums.
HECM Borrower Requirements
To qualify for a home equity conversion mortgage (HECM)—the most common reverse mortgage—you must:
Additionally, your lender will verify your income, assets, monthly living expenses, and credit history. They’ll also ensure you have a history of paying your real estate taxes and hazard/flood insurance premiums on time.
HECM Property Requirements
Properties must meet minimum FHA property requirements to be eligible for a reverse mortgage. While there’s a long list of specific standards, the guidelines focus on three areas:
- Safety—The property should protect the health and safety of the occupants.
- Security—The home should be a secure investment, meaning it will retain its value throughout the loan.
- Soundness—The home must be sound, without physical deficiencies or conditions affecting its structural integrity.
Keep in mind that you can get a reverse mortgage on a condo (or any other type of home) only if it’s your principal residence. The home won’t qualify if it’s your second home or vacation home.
Provided they meet the minimum property standards, the following types of properties are eligible for HECM reverse mortgages:
- Single-family homes
- Two to four-unit properties (i.e., a duplex, triplex, or quadruplex) as long as one of the units is your primary residence
- Properties in planned unit developments (PUDs)
- Manufactured homes (built after June 15, 1976)
While some condominiums won’t qualify for a reverse mortgage, most do. You can search for FHA-approved condominium projects by location, name, or status on the U.S. Department of Housing and Urban Development (HUD) website.
Newly constructed properties are eligible for a reverse mortgage only if local authorities have issued a certificate of occupancy or its equivalent.
Ineligible Reverse Mortgage Properties
While a variety of homes are eligible for a reverse mortgage, certain types of properties are ineligible, including:
- Boarding houses
- Bed and breakfasts
- Manufactured homes built before June 15, 1976
- Manufactured homes lacking HUD certification labels or a permanent foundation
Can I Change My Mind After Closing on a Reverse Mortgage Loan?
If you decide you made a mistake getting a reverse mortgage, you have a three-day rescission period after closing to cancel the loan without owing any interest. If you cancel after that, you have to pay back the loan proceeds you already received plus any accrued interest.
How Much Can You Borrow on a HECM?
The amount you can borrow depends on the age of the youngest borrower (or eligible non-borrowing spouse), the current interest rate, and the lesser of the home’s appraised value or $970,800—the HECM FHA mortgage limit in 2022.
If your home is worth more and you want to tap into more equity, you can look into a proprietary (aka “jumbo”) reverse mortgage. However, keep in mind that proprietary loans generally have higher interest rates and fewer consumer protections than FHA-insured HECMs.
What Happens If a Reverse Mortgage Lender Goes Out of Business?
Because a HECM reverse mortgage is covered by government insurance, the terms of the loan won’t change if your lender goes out of business. You will still receive your agreed-upon payouts as long as you fulfill the loan obligations.
The Bottom Line
Condominiums can be an attractive housing option for older adults wanting to spend less time on home maintenance while enjoying community amenities and, sometimes, single-story living. A reverse mortgage can help you fund your retirement—even if you have a condo—but keep in mind that these loans involve considerable costs, including mortgage insurance premiums and loan servicing fees.
If you decide a reverse mortgage is right for you, be sure to shop around and compare the costs of the loans available to you. While lenders generally charge the same mortgage insurance premiums, the other loan costs—including origination fees, closing costs, servicing fees, and interest rates—vary by lender.