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Can I get a reverse mortgage on a condo?

Can I get a reverse mortgage on a condo?

If you’re considering a reverse mortgage for your condominium, there’s an additional step involved in the qualification process that in most cases will disqualify your home from consideration.

Condo owners who want a federally insured Home Conversion Equity Mortgage (HECM) must live in a complex that is approved by the U.S. Department of Housing & Urban Development (HUD).

That’s because the marketability of a single unit is heavily dependent on the overall complex. Remember that in most cases the way a lender is repaid for a reverse mortgage loan is to sell the property after the death or relocation of the homeowner. Therefore, it’s in the lender’s best interest, as well as the government agency that insures the reverse mortgage, to ensure the property can be sold relatively easily once the loan closes.

HUD has a website specifically designed to inform condo owners whether their complex is on the approved list. If it’s not, they cannot qualify for an HECM.

Give us a call and or complete the quote form, and there are new condo regulations, and we may be able to help you determine quickly if you’re qualified.

How does a condo complex qualify

Applying to HUD for complex approval is usually done by the homeowners association or the management company. A complex is assessed based on its reserve budget, leasing guidelines, insurance risks such as flooding or high crime, the percentage of owner-occupied units versus those owned by investors, and the number of residents who are behind on HOA dues.

Some of the basic requirements for condos to qualify for FHA loans, including reverse mortgages, include:

  • It must be primarily residential with at least two dwelling units.
  • The property’s floor area used for non-residential or commercial purposes cannot exceed 25 percent of the overall floor area.
  • No more than 10 percent of units may be owned by a single investor or entity.
  • No more than 15 percent of the total units can be more than 60 days past due on association fee payments.
  • At least half of the units must be owner-occupied.
  • Some types of condos are not at all eligible, including condo “hotels,” timeshares, or those that feature more than one dwelling in a single condominium unit.

Even if your condo complex meets these requirements, it still has to seek certification and then be re-certified every two years. If the HOA or complex management does not want to be certified or has been denied before, there’s little that can be done to force them to reconsider.  You can bring it up at an association meeting or discuss it with other residents, but otherwise, it’s up to the association to determine whether it wants to go through the process.

Some associations, particularly higher-end complexes, don’t want to be certified out of concern for the types of residents that FHA certification appeal to.

As recently as 2013, less than 10 percent of condos nationwide were on the approved list, and about 60 percent of those that applied that year were denied. In November 2015, the FHA announced new guidelines intended to increase the number of eligible condo complexes.

The new guidelines expanded the definition of owner-occupied units to include those used as second homes. The new rules were also designed to streamline recertification. FHA condominium approvals expire after two years, but a complex can continue participation by re-certifying that it is still in compliance with FHA’s eligibility requirements and that no conditions exist which would present an unacceptable risk to FHA.

Proposed rule changes may open up reverse mortgages to more condo residents

If you live in a condominium and have been unable to obtain a reverse mortgage on your home, you may be able to soon take advantage of relaxed regulations.

The Federal Housing Administration has recently proposed new rules and guidelines that would make more condominium units eligible for Home Equity Conversion Mortgages (HECMs).

Currently, condos are among the most difficult types of residential property in which to obtain a reverse mortgage. Condo owners who want a federally insured Home Conversion Equity Mortgage (HECM) must live in a complex that is approved by the U.S. Department of Housing & Urban Development (HUD).

HUD has a website specifically designed to inform condo owners whether their complex is on the approved list. If it’s not, they cannot qualify for an HECM.

As recently as 2013, less than 10 percent of condos nationwide were on the approved list, and about 60 percent of those that applied that year were denied.

A condominium complex is assessed based on its reserve budget, leasing guidelines, insurance risks such as flooding or high crime, the percentage of owner-occupied units versus those owned by investors, and the number of residents who are behind on HOA dues.

 

New rules proposed by FHA
In September 2016, the FHA introduced new rules to allow individual condo units to become eligible for FHA financing, including HECMs.

FHA intends to reinstate single unit approvals in unapproved condominium developments. Under the proposed rules, an individual unit in an unapproved condo development may be eligible for an FHA-insured HECM if:

  • The unit is not on a project that has been subject to adverse determination for significant issues that affect the viability of the project.
  • The unit is not a manufactured housing condominium project or located in a two-to-four-unit project.
  • The condominium unit is not a manufactured home and is a project that has at least five dwelling units.
  • The unit is a project in which the amount of Single-Unit Approvals is limited to a maximum of 20 percent of the total number of units in the project, which may be reduced to as low as zero percent via the following notice.

According to a release by HUD: “FHA’s intent is to modify its condominium rules to ensure financial soundness and project viability, but in a manner that is more flexible where possible and responsive to the market.”

In addition to single-unit approvals, the new FHA condo guidelines also include:

  • Lengthening the amount of time a condo development has to recertify for FHA approval from two years to three years.
  • Changing the owner-occupancy requirement from a minimum of 50 percent to an “allowable range” between 25 % to 75 %.
  • Modifying the requirement of how much commercial and nonresidential space can be included in an approved condo development.

This proposal follows new guidelines issued in November 2015 also intended to increase the number of eligible condo complexes.

Those guidelines expanded the definition of owner-occupied units to include those used as second homes. The new rules were also designed to streamline recertification. FHA condominium approvals expire after two years, but a complex can continue participation by re-certifying that it is still in compliance with FHA’s eligibility requirements and that no conditions exist which would present an unacceptable risk to FHA.

Sources:
http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2016/HUDNo_16-146
http://portal.hud.gov/