Reverse Mortgages on Condos

You can get a reverse mortgage on a condominium, but it must be your principal residence, and it might not be a good idea.

Updated by , Attorney · University of Denver Sturm College of Law

You can qualify for a reverse mortgage, such as an FHA-insured Home Equity Conversion Mortgage (HECM), if you own a condominium, so long as the property is your principal residence and you meet other eligibility requirements. Reverse mortgages aren't limited to single-family detached homes.

HECMs are the most popular type of reverse mortgage. Reverse mortgage lenders don't consider your credit scores when making the loan. They're based on your home equity and other factors, so they're relatively easy to get.

But once you learn more about reverse mortgages, including their downsides, you might want to reconsider getting one.

How HECMs Work

The U.S. government insures HECMs through the Federal Housing Administration (FHA). This insurance mostly protects the lender, not the borrower. It comes into play if the loan is accelerated (called due) and the house isn't worth enough to pay back the lender in full through a foreclosure sale or another type of liquidation process, like a deed in lieu of foreclosure. In those cases, the FHA will compensate the lender for the loss.

Also, if you have a HECM and lose the home to foreclosure, you won't have to pay a deficiency judgment. The insurance covers the loss.

Reverse Mortgage Requirements and Eligibility

HECMs are generally available to borrowers 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, subject to some restrictions and requirements.

Eligible Properties

The following types of properties are eligible for a HECM:

  • a single-family home
  • a one- to four-unit dwelling (and you occupy one unit)
  • a condominium, or
  • a manufactured home that meets FHA requirements.

Other HECM Requirements

Other eligibility requirements include the following:

  • You can't be delinquent on any federal debt.
  • Your home must be in good condition.
  • You must have financial resources to make timely payments for ongoing property expenses, like property taxes, homeowners' insurance, and homeowners' association (HOA) fees.

You'll also have to comply with some requirements, like paying mortgage insurance premiums, maintaining the property, and having a set-aside account if you likely can't stay current on items like property taxes and homeowners' insurance bills in the future.

What Are the Downsides of a Reverse Mortgage?

Reverse mortgages have significant downsides:

  • The lender may call the loan due in many different kinds of scenarios.
  • The process can be cumbersome, involving a lot of documentation.
  • Reverse mortgage lenders are typically quick to start a foreclosure after a default happens.
  • Reverse mortgages are expensive due to closing costs, interest, servicing fees, mortgage insurance, and other fees.
  • A reverse mortgage could affect your eligibility for Medicaid.
  • By taking out a reverse mortgage, you spend down the equity in the property, which means you won't be able to access it later on to cover costs for things like long-term health care costs, to finance a move, or leave to your heirs. (You can still leave the home to your heirs, but they'll have to repay the loan.)

For More Information

If you're considering a reverse mortgage, it's highly recommended that you proceed cautiously and ensure you understand all the risks and conditions involved with such a loan. For more information on reverse mortgages and the risks related thereto, visit AARP's reverse mortgage webpage. You can also go to the Federal Trade Commission's website on reverse mortgages or the Consumer Financial Protection Bureau's website to get more information.

An attorney can also help you review the pros and cons of a reverse mortgage. Even though you'll have to complete a counseling session with a HUD-approved counselor to get a HECM, it's also wise to talk to a financial planner, an estate planning attorney, or a consumer protection lawyer before taking out this kind of loan.

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