Apartments, Condominiums, and Reverse Mortgages

Photo credit: flickr.com

Photo credit: flickr.com

If you have been watching television at any point within the last five years, you have probably seen advertisements for reverse mortgages. If you own your apartment or condo, you might also be wondering what reverse mortgages are, and whether or not you would qualify.

What is a Reverse Mortgage?

A reverse mortgage is a home loan that allows you to cash out a portion of your home’s equity. However, instead of paying part of the loan back each month, the bank pays you out of the equity for as long as you live in your home. Another option is for you to cash out the equity in one lump sum, in which case you would not have to pay back any of the loan as long as you live in your home.

Once you move out of the home, the bank can take ownership as per the loan agreement. If you do not want the property to go to the bank, then you will have to pay back the loan to prevent that from happening.

Do Apartments and Condos Qualify for Reverse Mortgages?

Several types of properties can qualify for a reverse mortgage, depending on the type of reverse mortgage you get.

Several properties qualify under the HUD reverse mortgage program, including condominiums, apartments and townhouses in PUD Communities, and even multi-family homes. Condominiums and PUD properties must be approved by the U.S. Department of Housing and Urban Development (HUD), and multi-family homes must have four units or fewer, and one of the units must be your primary residence.

Single purpose and proprietary reverse mortgages might have different criteria, depending on the lender.

Other Requirements

To qualify for a reverse mortgage, you must be age 62 or older and own your home free-and-clear. If you have an existing mortgage on your home, you could still qualify if the amount you owe is small enough that you could pay it off with the proceeds from the reverse mortgage.

Once you get the mortgage, you have to stay up to date on your real estate taxes as well as any condominium fees, insurance, utilities, and any other financial obligations associated with property ownership. You will also be responsible for keeping current on all maintenance and repairs.

Loan Limitations

In addition to requiring you to live on-site and stay current on all financial and maintenance responsibilities, some reverse mortgages might also have limitations on how you use the money.

Single purpose reverse mortgages are usually designated for one specific use, such as upgrading your home to make it more accessible or paying for health care expenses. The lender designates how the loan should be used, and the borrower generally cannot use these loans for other than their designated purpose.

HUD reverse mortgages tend to be flexible, which means you, the borrower, determines how the funds will be used.

Proprietary reverse mortgages could be flexible, or could be designated for a specific use. With flexible reverse mortgages, the funds can be used for anything. If the loan is for specific use, then the limitations for the single purpose reverse mortgage apply.

Applying for a Reverse Mortgage

HUD reverse mortgages are only available through HUD/FHA approved lenders; since these loans are sponsored by HUD, you might also be required to meet with a Home Equity Conversion Mortgage counselor when you apply for the loan.

Single purpose loans are only available through state and local government agencies. Just like the HUD loans, you might also be required to have counseling when you apply for the loan.

Proprietary reverse mortgages are available through a variety of lenders, and may or may not have additional qualification requirements.

Just like a traditional loan, you will need to have your property appraised and inspected, to determine the amount of equity that you have, and to ensure that the property is structurally sound. You might also need to submit to a credit check.

The funds from the reverse mortgage can be used for a specific purpose or for a variety of purposes, depending on the lender and your reasons for taking out the loan.

The advantage to the reverse mortgage is that you don’t have a monthly payment to worry about. You also don’t have to worry about what will happen to your property after you’re gone, because it will automatically go to the bank.

If you are over age 62 and own your apartment, condo, or townhouse free and clear, you could qualify for a reverse mortgage.