You can get a reverse mortgage if you own a condominium, as long as it is your principal residence. Reverse mortgages are not limited to single-family detached homes. Read on to learn more about how reverse mortgages (such as the FHA’s Home Equity Conversion Mortgage, as well as proprietary reverse mortgages) work.
How Reverse Mortgages Work
Reverse mortgages are designed to allow older homeowners to convert the equity in their homes into cash to supplement their income. Reverse mortgages differ from regular mortgages in that they do not require the borrower to make monthly payments to the lender to repay the loan. Rather, the loan proceeds are paid out to the borrower as a monthly payment, line of credit, or a lump sum (or a combination of these options). The amount available under the loan is based on how much equity the borrower has in the home.
The reverse mortgage loan only becomes due when you:
- sell the home
- move out permanently
- default on the mortgage (for example, by not paying the property taxes or maintaining adequate homeowners insurance), or
- pass away. (To learn more about reverse mortgages, see Nolo’s article Reverse Mortgages for Retirees and Seniors.)
Home Equity Conversion Mortgages (HECMs)
The Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration (FHA) reverse mortgage program. (The U.S. government insures HECMs through the FHA.) HECMs are the most common type of reverse mortgages, accounting for approximately 90% of the total market.
HECMs are generally available to borrowers who:
- are at least 62 years of age
- occupy the property as a principal residence, and
- own the home outright or have significant equity in the home. (Learn more about HECMs and how to qualify for this type of reverse mortgage in Nolo’s article New Restrictions on Reverse Mortgages.)
You can qualify for a HECM if your home is:
- a single family home
- a one to four unit dwelling (and you occupy one unit)
- a HUD-approved condominium (find out if your condominium is HUD-approved by going to https://entp.hud.gov/idapp/html/condlook.cfm), or
- a manufactured home that meets FHA requirements.
Proprietary Reverse Mortgages
Reverse mortgages that are not insured by the FHA are known as proprietary reverse mortgages. Private banks and mortgage lenders offer these proprietary reverse mortgages, though few exist in the marketplace today. Those that do exist are typically available only to those with high-value homes. (Proprietary reverse mortgages are sometimes called “jumbo reverse mortgages.”)
Proprietary reverse mortgages come in a variety of different forms, but most are nonrecourse loans (which means the lender cannot get a deficiency judgment) where borrowers qualify for the loan based on:
- their age
- the home’s value, and
- prevailing interest rates.
Since the government does not insure proprietary reverse mortgages, lenders tend to be conservative in underwriting them. And, the requirements to qualify for a proprietary reverse mortgage may be different than for a HECM. (To qualify for some proprietary reverse mortgages, for example, you only need to be 60 years old.)
Proprietary reverse mortgages are often available to condominium owners.
For More Information
If you are considering a reverse mortgage, it is highly recommend that you proceed cautiously and make sure you understand all of the risks and conditions involved with such a loan. For more information on reverse mortgages and the risks related thereto, visit the AARP’s reverse mortgage webpage at www.aarp.org/revmort.
To learn more about HECMs (reverse mortgages insured by the U.S. Government through the Federal Housing Administration), go to www.hud.gov and enter "Home Equity Conversion Mortgage" in the search box to find a list of relevant links.
You can also go to the Federal Trade Commission’s website on reverse mortgages at www.consumer.ftc.gov/articles/0192-reverse-mortgages or the Consumer Financial Protection Bureau’s website at www.consumerfinance.gov/askcfpb to obtain more information.