FOUNDATION
First Time Home Buying Made Easy
 
 

HUD Approved Condos: Can You Still Qualify for a Reverse Mortgage?

Learn if a condo is eligible for a reverse mortgage and how to find out if your condo complex is HUD approved.

There are so many things you need to think about when buying a home that it can make your head spin. However, if you’re nearing retirement and thinking about buying a home, that adds a whole new dimension to the home buying process and another whole list of things you need to think about as well. One of the things you can add to your list is buying a home with a reverse mortgage in mind. And if you are considering a condo as your next home, and a reverse mortgage is something you will at some point consider, you will also need to know whether or not your preferred condo is on the list of HUD approved condos. Yes, we realize this is probably all a bit confusing that’s why we are going to go over it in quite a bit of detail.

What Is a Reverse Mortgage?

A reverse mortgage is a specific type of home loan that will help homeowners who are 62 or older gain access to the equity in their home to help pay for other things. Reverse mortgages are helpful to seniors who want to remain in their homes versus having to go into a retirement home environment. This type of loan will give an older homeowner the money they need to remain in their home, whereas without this income, they might not be able to. However, the money received from a reverse mortgage can be spent on anything the homeowner wants to spend it on.

How Does a Reverse Mortgage Work?

A reverse mortgage is simply a line of credit, a lump sum or a monthly advance on a home’s equity and in some cases it’s all three. These payments are made by the lender to you rather than the way a traditional loan payment works where you pay the lender. Additionally, these loans only come due when the borrower sell’s the home, if he moves out of that home permanently, defaults on the mortgage by not paying the property taxes or not keeping adequate homeowners insurance, or if the homeowner passes away.

Are There Different Types of Reverse Mortgages?

hud approved condos

There are three different types of reverse mortgages, a single-purpose reverse mortgage, home equity conversion mortgages (HECM’s), and a proprietary reverse mortgage. So let’s take a few minutes to go over each one in a little more detail.

Single-Purpose Reverse Mortgages. This type of reverse mortgage is offered by some state and local government agencies and non-profits. The single-purpose reverse mortgages are not widely available and therefore only make up a small portion of the reverse mortgage market. Additionally, these types of loans are mostly given to low or moderate income homeowners and are sometimes referred to as property tax deferral programs.

Home Equity Conversion Mortgages (HECMs). This type of loan is the Federal Housing Administration’s (FHA) version of the reverse mortgage and the U.S. government insures these types of loans through the FHA. The HECMs are the most common of the reverse mortgages and make up about 90 percent of the total reverse mortgage market. For this type of loan, you must be at least 62 years of age and use that home as your primary residence. You must also own the home outright or have a significant amount of equity in your home. Additionally, you will qualify for a HECM if your home is a single family home or a one-to four-unit dwelling with you occupying one of those four units. And your home must be a HUD approved condo.

Proprietary Reverse Mortgages. This type of reverse mortgage is not insured by the FHA and that’s why they’re called proprietary reverse mortgages. Private lenders and banks are where you will find this type of loan, although they are not very popular in today’s reverse mortgage marketplace. However, those that are in existence are primarily available to people with high-value homes. Additionally, proprietary reverse mortgages are quite often readily available to condo owners. These types of loans are also referred to as jumbo reverse mortgages. Borrowers will qualify for a proprietary reverse mortgage based on their age (starting at 60 years old), the home’s value and current interest rates.

Can I Apply for a Reverse Mortgage If I Live in a Condo?

hud approved condos

You can apply for and get a reverse mortgage if you own a condo. However, the rules for getting a reverse mortgage for a condo are much different than those for single family residences, because the entire condo complex must be approved first. If you already live in an FHA approved condo, then you shouldn’t have any problems if you qualify. Additionally, if you have a condo but you don’t share any walls with other units, then in your particular situation, your home might be considered a “site condo,” which doesn’t need to be FHA approved. However, there are very few condos that fall into this category.

Sign up with Movoto now for the best way to find your dream home. All the homes, all the info, totally free.

What Are HUD Approved Condos?

If you are thinking about taking out an FHA reverse mortgage and you own a condo, that condo complex must be HUD approved before you can do so. A HUD approved condo requires the whole condo complex be approved by the Department of Housing & Urban Development (HUD) before the reverse mortgage loan will be accepted. And this is because the financial stability of the condo community is based on the entire complex as a whole, which means it needs to be financially stable before HUD will approve it.

What Are the FHA Condo Guidelines for A Complex Being Approved?

hud approved condos

The FHA has a set criteria for any condo complex that wants to become HUD approved. That means they will have to comply and submit all requested information along with their application before they will be considered.

The FHA is going to ask to see their financial statements, insurance policies, and other information regarding the physical make up of the community. The guidelines for approval include a 95 page approval and processing guide, which is a bit outside the scope of this article to cover everything. However, here are a few of the basic requirements.

  • The complex must be made up of mainly residential units and have at least two dwelling units.
  • The property can’t use more than 25 percent for non-residential or commercial purposes.
  • The community can’t have more than 10 percent of the units that are owned by one investor or entity.
  • There can’t be more than 15 percent of the total units that are more than 60 days past due on their condo association fee payments.
  • The community as a whole must have at least 50 percent owner-occupied units.

How Can I Find Out If My Condo Complex Is HUD Approved?

You can easily find out if your condo complex is HUD approved by going to the HUD.gov website where you can enter the information of your condo complex and HUD will tell you if that particular condo complex is HUD approved or rejected and if it’s not listed, it’s not approved. Unfortunately, if your condo complex is not approved, many homeowners associations don’t usually get in a hurry or make much effort at all to get HUD approved because it’s such a long 30-60 day approval process, which can make getting a reverse mortgage while in this situation difficult.

2 Point Highlight

1. If you’re nearing retirement and thinking about buying a home, that adds a whole new dimension to the home buying process and another whole list of things you need to think about as well.

2. If you are considering a condo as your next home, and a reverse mortgage is something you will at some point consider, you will also need to know whether or not your preferred condo is on the list of HUD approved condos.

Facebook

Like Movoto on Facebook:

posted on: April 28, 2016
[views], no comments