Can I Get A Reverse Mortgage On My Condo?

Reverse mortgage guidelines on condos have become more flexible than they used to be, opening up this  financial vehicle as a possibility to more homeowners than ever before.  To be eligible for a home equity conversion mortgage, or HECM, a condo  needs to be FHA-approved. Here’s how to determine if your condo is  eligible and what you can do if it isn’t.

To find out if your condo is eligible for a reverse mortgage, enter  the condominium’s name, location, or status on the Housing and Urban  Development (HUD) website. If the condo project is FHA-approved, you’re good to continue with your reverse mortgage application. 

As with any reverse mortgage application, even approved condos will  also need to meet FHA appraisal requirements. As a part of the loan  application process, an appraiser will visit the condo to determine the  property’s value and inspect it for health and safety requirements. The  condo must meet the following safety standards:   

• The condo must have adequate electricity, heating, and running water. 
• There must be roofing, as well as a bathroom.  
• The condo must be structurally sound and not have any safety hazards. 
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It is not uncommon to find that condos are not FHA-approved. In those  situations, a borrower can independently seek FHA approval for a condo  project.  

There are two options to obtain FHA approval. A borrower can approach  their homeowner’s association (HOA) to inquire if they will seek FHA  approval for the whole complex. Alternatively, the borrower can obtain  an FHA single-unit approval. 

If several condo owners are interested in seeking reverse mortgages,  the HOA may be more likely to pursue FHA approval. The HOA will spend at  least $700 to $900 to get approval, and there isn’t necessarily a  guarantee the condo project will eventually be FHA-approved.  

The updated requirements a condo project must meet to get FHA approval are as follows: 

• There must be at least two dwelling units in the condo project.  
• The condo project must be primarily residential. 
• At least 50% of the units must be owner-occupied.  
• A single investor may own no more than 10% of the units.  
• The condo project must permit leasing. 
• There  cannot be a requirement that a unit must be owner-occupied for one year  before it is leased (typically called a seasoning clause).  
• No more than 15% of the total units can be 60 days past due on their HOA fees.  
• The total floor plan may be used for a maximum of 35% for commercial purposes. 
• At least 10% of the HOA budget must fund a savings account.  
• A maximum of 50% of units in a condo project may be FHA-insured. 
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Even if several condo owners want to obtain FHA approval, the HOA  needs to put time, effort, and money into the application, and some HOAs  decline to pursue the process. If the HOA doesn’t want to do the work  to get approval, it may be easier for a borrower to pursue a single unit  approval (called a “spot approval” prior to the 2019 legislation).  

Borrowers may receive FHA approval for a single unit even if the entire condo project isn’t FHA-approved.  

Borrowers must show the following for single-unit approval:  

• Construction on the condo must be complete.  
• In projects with more than ten units, no more than 10% are FHA-insured. 
• In projects with less than ten units, no more than two units are FHA-insured.  
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Condo owners with approved units must meet the same criteria for eligibility as any other reverse mortgage borrower. Once you’ve established your condo’s eligibility, you can begin the application process. The first step will be a reverse mortgage counseling session