What types of property qualify for a reverse mortgage?
A reverse mortgage can be a valuable solution for seniors who want to remain in their homes, but who may need additional cash flow every month. An FHA reverse mortgage, also called a Home Equity Conversion Mortgage (HECM), is designed for borrowers age 62 and older who either own their home outright or owe very little on their mortgage. HECMs can help alleviate financial stress by allowing senior homeowners to covert equity in their home into cash or a line of credit.
Reverse mortgage borrowers are still responsible for paying their homeowners insurance premiums and property taxes, but instead of making monthly mortgage payments to the lender, the lender actually distributes funds to the borrower. The money can be used for whatever the homeowner wants, and it does not have to be repaid until the last surviving homeowner on the mortgage no longer uses the home as a primary residence.
Reverse mortgage can be used for a variety of housing types; however, not all types of homes will qualify. An FHA reverse mortgage loan has property, occupancy and flood guidelines and restrictions. Single-family homes, duplexes, triplexes and four-plexes with at least one unit occupied by the borrower, HUD-approved condominium projects and some manufactured homes that meet FHA requirements are eligible for a reverse mortgage. Not all lenders offer reverse mortgages on manufactured homes, so borrowers may have to consider other financing options like a home equity loan. Secondary homes or vacation homes are not eligible for FHA reverse mortgages.
Properties Eligible for Reverse Mortgages
According to the FHA, a single-family home is defined as a stand-alone unit or one that is attached to another building, such as a patio home. If it is attached to another building, or home, it must be divided by a common wall that does not allow access to the other unit. The FHA also defines a single-family home as a condominium, townhouse, or manufactured home affixed to a permanent foundation.
Duplex, Triplex and Fourplex
Homes with up to four living units, or multi-tenant buildings, may be eligible for an FHA reverse mortgage if the owner lives in one of the units. Any multiplex with five or more units is considered a commercial property and is therefore not eligible for a reverse mortgage.
Condominiums are considered a one-family unit in a project coupled with an undivided interest in the common areas and facilities which serve the project. The owner of a condo unit owns the inside, but not the exterior walls, roof, or structural properties. In order to be eligible for a reverse mortgage on a condo, the entire condominium project must meet FHA guidelines.
Mobile homes are homes that are not affixed to a permanent foundation and are not eligible for FHA reverse mortgages. Follow this link for more information regarding reverse mortgages and mobile home eligibility.
The FHA has strict guidelines on insuring permanently affixed manufactured homes. Remember, because of their construction and the environment they are located, not all lenders offer reverse mortgages on manufactured housing.
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Potential Benefits of Reverse Mortgages**:
- No monthly payments and no repayment is required until all borrowers are no longer using their property as their primary residence, all parties on the deed pass away, or they fail to pay their property taxes and homeowners insurance.
- Tax free monthly income*
- Payments can be used for whatever the borrower wants, including home renovations, consolidating debt, paying for medical expenses and insurance costs, and traveling and other leisure activities
- Reverse mortgages provide a tool that allows seniors to tap into the equity they have in their homes. There are no income or minimum credit score qualifications. In today’s tightening credit markets, reverse mortgage products may be one of the best solutions available to most retired homeowners.
- Possibly the greatest benefit of all, reverse mortgage programs may help seniorsremain in their homes that they have worked so hard to pay for throughout their lives.
- A reverse mortgage is what we call a non-recourse loan. This means that with a reverse mortgage you are not personally liable. The liability is only to the extent of the value of your home at time of sale, death or vacating the premises as your permanent residence. You are not liable nor are your heirs personally liable; they can either sell the home at time of your death or keep the home and pay off the remaining balance of the reverse mortgage.
Talk to a reverse mortgage professional to learn more about some of the benefits of reverse mortgages and to see if one is right for your financial needs.
*Consult a financial tax professional for details.
**Loan benefits and parameters are subject to change. Consult with a mortgage professional for up-to-date information.