I know getting a reverse mortgage on a condo isn’t something that most people think is possible so let me clarify. You can indeed get a reverse mortgage on a condo and still live there. And if you’re looking for a reverse mortgage for condos, it’s important to understand how they work and what they can do for you.
Knowing whether or not your condominium will qualify for a reverse mortgage is essential before beginning the application process. If you’re unsure, it’s best to consult a professional who can help you determine whether or not your property will meet the requirements.
So, whether you’re thinking about obtaining a reverse mortgage for condos or want to learn more about them, keep reading!
Reverse Mortgages on Condos
Condominiums are a popular housing choice for seniors, especially those looking to downsize or live in a maintenance-free environment. If you’re considering a reverse mortgage and you’re a condominium owner, you may wonder if you’re eligible.
There are generally no restrictions on obtaining a reverse mortgage on a condominium unit as long as the property meets opens in a new windowspecific requirements.
How Home Equity Conversion Mortgages HECMs Work
A reverse mortgage is a form of withdrawal provided by the government-backed Housing Finance Authority. In some areas, homeowners must pay a security deposit to an escrow account before it is released.
The equity in your house will be used toward the purchase price of your home.
With a HECM, you can choose how you want to receive your funds in the form of a monthly payment, a line of credit, or a combination of both.
If you can pay the difference between the HECM proceeds and the sales price of the property plus closing expenses, you may use a HECM to buy a primary residence.
Are condos and townhomes the same thing?
No, condos and townhomes are not the same things. While they may have some similarities, there are also substantial differences between the two property types.
Condos are typically part of a bigger structure or complex that is jointly owned by all of the unit owners. Townhomes, on the other hand, are typically standalone units. That means that while you may share walls with your neighbors in a townhome, you will not have any shared common spaces like you would in a condo.
Another key difference is that condos have higher fees than townhomes. This is because the condo fees typically include costs for exterior upkeep, such as lawn care, trash removal, and pest control.
HECM Borrower Requirements
The Federal Housing Administration sponsors the home equity conversion mortgage and provides insurance on the products. Here are the FHA guidelines and eligibility for these loans.
- You should be at least 62 years old to participate.
- You own the property or have made substantial payments on it.
- They live on the property as their primary dwelling.
- Must not have liabilities or any government debt.
- Must have enough funds to pay property taxes, insurance, and homeowner association payments on time.
Additionally, your lender will also verify your earnings, investments, monthly living expenditures, and credit history are all factors to consider. They will also validate that you have an account of real estate taxes that must be paid on time and also flood/hazard insurance premiums.
The Department of Housing and Urban Development in the United States (HUD) insures HECMs on properties that:
- Are single-family homes or two- to four-unit houses, with the borrower occupying one unit.
- A condominium that has been HUD-approved.
- FHA-approved prefabricated home.
These are what you have to ensure to have an FHA-approved condo.
Ineligible Reverse Mortgage Properties
In general, you will not be qualified for a HECM if you do not meet HUD’s core requirements. You will be unable to receive one if you still owe a large sum on your mortgage or if you and your spouse are both under the age of 60.
The following types of properties are ineligible for a HECM:
- investment properties
- vacation homes
Certain repairs may need to be completed before opens in a new windowHUDopens WORD file will insure the loan. These include health and safety hazards, code violations, and termite damage and the property must also be free of any other liens.
Additionally, you must also comply with state and local laws. For example, some states require that you get a reverse mortgage counseling certificate before you can apply for a loan.
Loan Limits On Condominiums
FHA insured mortgages, like conventional home loans, have maximum loan amounts that vary based on the property’s location. Furthermore, “floor” and “ceiling” restrictions apply depending on the sort of property purchased with an FHA mortgage.
The maximum borrowing limit for a home in 2021 will be a single-family home or condominium purchase of $368,560. However, in high-cost areas like Hawaii and Alaska, that number can be as high as $765,600.
Additionally, the FHA has different rules for loans on properties that are part of an FHA-approved condominium development versus those that are not. In order to be approved, a condominium development must meet certain opens in a new windowstandards set by the FHA.
If you want an FHA condo loan, the HUD search tool is a good place to start looking for a suitable development in your location. Approved condo projects are listed by name, state, zip code, and other criteria on the opens in a new windowHUD search tool.
Insurance Premiums On Condominiums
Condominium unit owners should get their own insurance to provide security and financial assistance in the event of a crisis. Others who bought condo insurance will be happy that they did so during harsh economic conditions, while those who didn’t will be sorry.
Condo insurance typically covers damage to the unit itself, such as the internal walls and flooring, as well as the personal belongings of unit owners, such as appliances and furniture.
Overall, getting condo insurance is an excellent idea to protect your investment and personal belongings. Make sure to look around for the best rates and coverage options.
Reverse Mortgages on Condo FAQs
You might have heard that you can obtain a reverse mortgage on your condo, but you might not know how they work or if there are downsides to it.
Here are answers to some of the most frequently asked questions concerning reverse mortgages on condos.
What if your condo is not FHA approved?
If the condominium is not FHA approved, the condominium organization may be willing to go through the FHA approval process.
Obtaining FHA approval would help condo owners by broadening the pool of possible buyers. It would also provide owners looking to remortgage with another FHA loan alternative.
Keep in mind that the approval procedure varies depending on the structure’s original construction. Older structures, for example, may take longer to approve than new developments.
What Are the Downsides to a Reverse Mortgage?
Before taking out a reverse mortgage on a condo, it’s essential to understand the potential drawbacks.
These are some examples:
Lots of payments
When you obtain a reverse mortgage, you must pay numerous costs comparable to those incurred with a regular loan. These fees include a mortgage insurance premium, an origination fee, a servicing charge, and third-party expenses. The first mortgage insurance premium for an HCEM is 2% of the loan amount, plus 0.5 percent.
The loan balance grows over time
Because interest and fees are applied to the loan balance each month, your loan balance increases rather than decreases over time, and your home equity drops as your loan balance rises. Because it is a loan, you must repay it with interest.
You must own your property in order to qualify for a reverse mortgage or have a small mortgage balance that you can pay off at closing with the proceeds from the reverse mortgage loan in order to qualify for a reverse mortgage. Unless you have a substantial amount of equity in your home, you may not be eligible for a reverse mortgage.
In the event that you fail to make property taxes and insurance payments, or if you otherwise default on the loan terms, the lender can foreclose payments.
Possible early repayment
Apart from when a homeowner passes or moves out, the reverse mortgage loan may have to be repaid sooner than intended if the owner fails to pay property taxes, homeowners insurance, or if the owner fails to maintain the home.
In order to avoid foreclosure, you must stay current on your property taxes and insurance and keep up with routine maintenance on your home.
There isn’t enough money to go around
Even if your you are property owners, and your house is worth more, the government-insured Home Equity Conversion Mortgage’s maximum reverse mortgage limit is $970,800 (updated January 1st, 2022).
This means that if you have a home with a lot of equity, you may not be able to access all of it with a reverse mortgage.
You must be at least 62
If you want an FHA-insured reverse mortgage, the youngest borrower must be 62.
Additionally, if you want a reverse mortgage but you’re not yet 62, you have to wait or look for other options.
Your heirs will only inherit what is left of the home
If you obtain a reverse mortgage and you die or move out of the home, your heirs will only inherit what is left of the home equity.
They will not be responsible for paying back the loan, but they will only inherit whatever is left of the home’s value after the loan is paid off.
This could mean that your heirs will have to sell the home to pay off the loan, or they may have very little equity.
Reverse Mortgages are complex
Because of this, many individuals are unaware that they have a reverse mortgage factored into their existing house. It’s challenging to figure out what you’re paying for and what you’re receiving when it comes to these loans.
There are several different forms of reverse mortgages on the market, each with its own set of restrictions. Before applying for one, you must educate yourself on the specifics of each reverse mortgage type.
Lenders are not always transparent
It cannot be easy to find a reputable and transparent lender. Many different types of lenders offer these loans, so you need to make sure that you go with a lender who will work with you and treat you fairly.
Reverse Mortgages can be helpful when used properly, but they can also be dangerous if used incorrectly.
Before taking out a reverse mortgage program, it is important to understand all the terms and conditions.
Working with a reputable lender is essential when considering a reverse mortgage. There are many different types of lenders, and not all of them are created equal. Make sure to do your research so that you can find a lender who will treat you fairly throughout the process.
What happens if a reverse mortgage lender goes out of business?
Your loan should not be affected if your lender goes bankrupt or out of business. When a mortgage lender goes out of business, the loans they have made are usually sold to another lender or service company.
A condo unit can be a great housing option for older adults, but it’s essential to understand the potential downsides before making a purchase. Before taking out a reverse mortgage, make sure you are comfortable with the possible early repayment terms before taking out a reverse mortgage. Ultimately, condominiums can be a great option as long as you do your research ahead of time.
If you would like to learn more about reverse mortgages on condos, feel free to contact me and have a opens in a new windowquick call!