If you’re an older adult, you may be able to get a reverse mortgage on a condo. A reverse mortgage lets homeowners age 62 or older access their home equity while remaining in the house—and retaining the title.
Nearly all reverse mortgages are home equity conversion mortgages (HECMs), insured by the Federal Housing Administration (FHA) and sold by FHA-approved lenders.
There are not only strict borrower requirements for obtaining an HECM but also rules defining which properties are eligible. The rules described below apply to HECMs, so if you have a different type of loan, contact your lender or loan servicer if you have questions or concerns.
- A reverse mortgage provides income to help retirees cover costs like basic living expenses, medical bills, and home repairs.
- Most reverse mortgages are home equity conversion mortgages (HECMs), insured by the Federal Housing Administration (FHA) and sold by FHA-approved lenders.
- Reverse mortgages aren’t due until the last borrower sells the home, moves out, stops paying property charges (e.g., taxes and insurance), or dies.
- Borrowers must be age 62 or older, live in the home as a primary residence, and have at least 50% equity in the home.
- Eligible properties include single-family homes, two- to four-unit homes with a borrower-occupied unit, and FHA-approved condominiums.
HECM Borrower Requirements
To qualify for an HECM—the most common reverse mortgage—you must:
- Be at least 62 years old
- Own your property outright or have at least 50% equity in it
- Live in the home as your principal residence
- Not be delinquent on any federal debt (e.g., taxes and student loans)
- Have the financial resources to pay property taxes, homeowners insurance, homeowners association (HOA) fees, and the like
- Participate in a consumer information session given by a U.S. Department of Housing and Urban Development (HUD)-approved HECM counselor
Additionally, your lender will verify your income, assets, monthly living expenses, and credit history. They’ll also ensure that you have a history of paying your real estate taxes and hazard/flood insurance premiums on time.
HECM Property Requirements
Properties must meet minimum FHA property requirements to be eligible for a reverse mortgage. While there’s a long list of specific standards, the guidelines focus on three areas:
- Safety—The property should protect the health and safety of the occupants.
- Security—The home should be a secure investment, meaning that it will retain its value throughout the loan.
- Soundness—The home must be sound, without physical deficiencies or conditions affecting its structural integrity.
Keep in mind that you can get a reverse mortgage on a condo (or any other type of home) only if it’s your principal residence. The home won’t qualify if it’s your second home or vacation home.
Provided that they meet the minimum property standards, the following types of properties are eligible for HECMs:
- Single-family homes
- Two- to four-unit properties (i.e., a duplex, triplex, or quadruplex), as long as one of the units is your primary residence
- Properties in planned unit developments (PUDs)
- Manufactured homes (built after June 15, 1976)
The homeowners association (HOA), not the individual owner, is responsible for maintaining flood insurance on condominium buildings located in a flood hazard area.
While some condominiums won’t qualify for a reverse mortgage, most do. You can search for FHA-approved condominium projects by location, name, or status on the HUD website.
Newly constructed properties are eligible for a reverse mortgage only if local authorities have issued a certificate of occupancy or its equivalent.
Ineligible Reverse Mortgage Properties
While a variety of homes are eligible for a reverse mortgage, certain types of properties are ineligible, including:
- Boarding houses
- Bed and breakfasts
- Manufactured homes built before June 15, 1976
- Manufactured homes lacking HUD certification labels or a permanent foundation
Mortgage lending discrimination is illegal. If you think that you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, file a complaint with the Consumer Financial Protection Bureau or HUD.
Can I Change My Mind After Closing on a Reverse Mortgage Loan?
If you decide that you made a mistake getting a reverse mortgage, you have a three-day rescission period after closing to cancel the loan without owing any interest. If you cancel after that, you have to pay back the loan proceeds that you already received plus any accrued interest.
How Much Can You Borrow on a Home Equity Conversion Mortgage (HECM)?
The amount that you can borrow depends on the age of the youngest borrower (or eligible non-borrowing spouse), the current interest rate, and the lesser of the home’s appraised value or $970,800—the Federal Housing Administration (FHA) limit for home equity conversion mortgages (HECMs) in 2022.
If your home is worth more and you want to tap into more equity, you can look into a proprietary (or jumbo) reverse mortgage. However, keep in mind that proprietary loans generally have higher interest rates and fewer consumer protections than FHA-insured HECMs.
What Happens If a Reverse Mortgage Lender Goes Out of Business?
Because an HECM is covered by government insurance, the terms of the loan won’t change if your lender goes out of business. You will still receive your agreed-upon payouts as long as you fulfill the loan obligations.
The Bottom Line
Condominiums can be an attractive housing option for older adults wanting to spend less time on home maintenance while enjoying community amenities and, sometimes, single-story living. A reverse mortgage can help you fund your retirement—even if you have a condo—but keep in mind that these loans involve considerable costs, including mortgage insurance premiums and loan servicing fees.
If you decide that a reverse mortgage is right for you, be sure to shop around and compare the costs of the loans available to you. While lenders generally charge the same mortgage insurance premiums, the other loan costs—including origination fees, closing costs, servicing fees, and interest rates—vary by lender.