Can You Do a Reverse Mortgage on a Condo?

A reverse mortgage allows homeowners to convert a portion of their home equity into cash without selling their property. This financial tool can provide funds as a lump sum, monthly payments, or a line of credit. Many older adults consider reverse mortgages to supplement retirement income, pay off debt, or cover various expenses. While commonly associated with single-family homes, reverse mortgages can also be obtained on condominium units, provided specific criteria are met.

Condo Qualification Criteria

For a condominium unit to be eligible for a Home Equity Conversion Mortgage (HECM), the entire condo project must typically be on the FHA’s approved list. This approval ensures the complex meets financial, occupancy, and structural standards set by the FHA. FHA approval requires adequate reserve funds and a low percentage of delinquent homeowner association (HOA) dues, generally less than 15%.

The condominium unit must serve as the borrower’s primary residence. The property must be a condominium unit and meet FHA minimum property standards.

FHA also sets requirements for owner-occupancy ratios, typically requiring at least 50% owner-occupied units. There are also limitations on the concentration of FHA-insured units within a project. The property must also meet a minimum appraised value.

Borrower Qualification Criteria

Individuals seeking a reverse mortgage on a condo must meet specific personal and financial requirements. The youngest borrower named on the title must be at least 62 years old to qualify for a HECM.

Borrowers must have a substantial amount of equity in the condominium. While HUD does not specify an exact percentage, industry norms for HECMs generally suggest at least 50% equity. The loan amount available is influenced by the youngest borrower’s age, the condo’s appraised value, and prevailing interest rates.

A mandatory requirement for all HECM applicants is to attend a counseling session with a HUD-approved reverse mortgage counselor. This session educates borrowers about the features, costs, and alternatives to a reverse mortgage. The counseling fee typically ranges from $125 to $200, which the borrower must pay out-of-pocket.

Borrowers must also demonstrate the financial capacity to meet ongoing property obligations. These obligations include paying property taxes, homeowner’s insurance, and any applicable Homeowners Association (HOA) fees. Failure to consistently meet these payments can result in a default on the reverse mortgage loan. Lenders conduct a financial assessment to determine a borrower’s ability to cover these expenses, and sometimes loan proceeds may be set aside for future property charges.

Applying for a Reverse Mortgage on a Condo

The process for obtaining a reverse mortgage on a condo begins with an initial inquiry to a lender to discuss available options. Following this, a mandatory step is attending a counseling session with a HUD-approved reverse mortgage counselor. Upon completion of the counseling, the borrower receives a certificate, which is a necessary document for proceeding with the loan application.

After counseling, the formal application is submitted to the lender, along with required documentation such as identification and proof of financial resources for the financial assessment. An independent, HUD-approved appraiser conducts a property appraisal to determine the condo’s value. This appraisal considers the specific unit’s condition and the overall marketability of the condominium project.

The application then moves to underwriting, where the lender thoroughly reviews all submitted documents, the appraisal report, and the financial assessment to ensure all eligibility criteria are satisfied. The underwriting process verifies compliance with FHA and lender guidelines. Once approved, the loan proceeds to closing, where loan documents are signed, typically at a title company.

Associated closing costs include an upfront mortgage insurance premium (MIP), an origination fee, and various title and settlement fees. The upfront MIP is 2% of the appraised value or the maximum lending limit, whichever is less. Origination fees are capped at $6,000, calculated as 2% of the first $200,000 of the property’s value plus 1% of the amount exceeding $200,000. After a three-day right of rescission period for refinances, the funds are disbursed to the borrower, either as a lump sum, monthly payments, or a line of credit, based on the chosen payment option.