Can You Get a Reverse Mortgage on a Condo?

Reverse mortgages allow homeowners aged 62 or older to convert a portion of their home equity into cash without selling their home or making monthly mortgage payments. The loan balance becomes due when the last borrower permanently leaves the home. Condos generally qualify for reverse mortgages, though specific conditions apply to both the borrower and the project.

Eligibility Requirements for Condos

To qualify for a reverse mortgage on a condo, the homeowner and property must meet criteria. The borrower must be at least 62 years old and own substantial equity in the condo, typically 50% or more of its value. The condo must also serve as the borrower’s primary residence, meaning they live there for the majority of the year.

For most reverse mortgages, particularly the Home Equity Conversion Mortgage (HECM), the condo project must be approved by the Federal Housing Administration (FHA). FHA approval ensures the project meets certain financial and structural standards. This includes evaluating the financial health of the Homeowners Association (HOA), checking that a sufficient percentage of units are owner-occupied, and verifying that commercial space within the project does not exceed FHA limits. Homeowners can check if their condo project is FHA-approved by searching the Department of Housing and Urban Development (HUD) website.

Beyond FHA approval, the financial stability and operational structure of the HOA play a role in eligibility. Lenders will review HOA documents, including bylaws, financial statements, and insurance policies, to assess any risks. Pending litigation against the HOA or a history of financial mismanagement could impact a condo’s eligibility for a reverse mortgage. While individual condos are generally eligible, properties within cooperative housing developments (co-ops) are not eligible for HECM reverse mortgages.

The Application Process for Condos

Once a condo and its owner meet the eligibility criteria, the application process for a reverse mortgage begins. The initial steps involve finding a qualified lender specializing in reverse mortgages and having a consultation to discuss the homeowner’s needs and options. This discussion helps determine the potential loan amount and available disbursement methods.

Before formally applying, borrowers must complete a counseling session with a HUD-approved counselor. This counseling ensures borrowers fully understand the terms, costs, and implications of a reverse mortgage, including potential alternatives. The session lasts 60 to 90 minutes and covers loan aspects.

After counseling, the homeowner can submit their application to the chosen lender. This submission includes financial documents and property details. An appraisal of the condo is then ordered to determine its current market value, which is a factor in calculating the eligible loan amount. For condos, the appraiser will consider comparable sales within the same complex or similar nearby projects.

Following the appraisal, the loan moves into the underwriting phase, where the lender reviews documentation, including the appraisal report and the borrower’s financial information, to ensure compliance with guidelines. If approved, the final step is loan closing, where parties sign legal documents. After a rescission period, usually three business days, funds are disbursed according to the chosen payment option.

Understanding Reverse Mortgage Terms for Condos

After a reverse mortgage is in place for a condo, understanding ongoing financial aspects and responsibilities is important. Borrowers have several options for receiving funds, including a single lump sum, a line of credit, or regular monthly payments, which can be for a set period (term payments) or for as long as the borrower lives in the home (tenure payments). The choice of disbursement option can impact the amount of cash available over time.

The loan balance grows over time. Interest accrues on the amount borrowed, and ongoing mortgage insurance premiums (MIP), which protect both the borrower and the lender, and service fees are added to the loan balance. This means the total amount owed increases throughout the life of the loan.

The loan becomes due and payable when conditions are met, such as when the last borrower moves out of the condo, sells the property, or passes away. If the condo is no longer the primary residence for a continuous period exceeding 12 months, the loan may also become due. At this point, the loan must be repaid, usually by selling the condo or through other financial arrangements.

Condo owners with a reverse mortgage have responsibilities to maintain the loan. These include paying property taxes and homeowner’s insurance premiums. Condo owners must also continue to pay their Homeowners Association (HOA) fees. Failure to keep current on any of these property charges can lead to a default on the reverse mortgage, potentially resulting in foreclosure. A protection for borrowers and their heirs is the non-recourse feature, meaning the amount owed will never exceed the home’s value at repayment, regardless of the loan balance.