Reverse Mortgage on Condominiums

Can I get a reverse mortgage on a condominium?

Yes, it may be possible to obtain a reverse mortgage on a condominium. There are many ways to get a reverse mortgage on a condo.

In this article, we will explore three main ways that condominium owners can obtain a reverse mortgage:

• FHA-Approved Condominium Associations
• Single Unit Approval
• FNMA Limited Review Process (HomeForLife only)

Condominium requirements depend on the specific loan type that you are seeking, so we have broken this down for you.

FHA-Approved Condominium Associations

Perhaps the most well-known way to obtain a reverse mortgage on a condominium is by having the entire project approved by the FHA. The condo association must submit details to the FHA for them to approve the condominium project. Once the project has been approved, the FHA will list the association on their website.

Full FHA project approval and its ongoing compliance can be burdensome for condominium associations. In many cases, associations complete the full approval and allow their approval to lapse.

Check for full project approval on FHA’s website. To search, you should be able to provide the:

• State
• City

As a tip, you can search just using the information that you already know. For example, if you know the condo association is located in Miami, Florida, but you do not know the name of the association or its identifier, you can simply search by state and city.

How to use the FHA website to search for FHA-approved condominiums

The benefit of an FHA-approved condominium association is that there are much more limited documentation requirements for the borrower. The lender is able to handle almost everything in the background on behalf of the borrower.

Single Unit Approval

Single unit approvals can be completed by individual lenders. For individual lenders to complete an FHA single unit approval on a condominium, there is some additional documentation that is required.

Your lender may be able to obtain these documents on your behalf, but they may request your help in obtaining them from the condominium association. These documents are all standard and your association should have no trouble with providing them to you.

Legal Documents

• Copy of Covenants, Conditions & Restrictions (CC&Rs)
• Executed bylaws
• Articles of Incorporation

Financial Documents

• Balance Sheet
• Income Statement
• Year End Results (either income statement or financial audit)

Insurance

• Insurance policy declarations page
• Fidelity bond (also known as Crime or Employee Dishonesty Policy)

Miscellaneous

• Signed Management Company Agreement (not applicable if self-managed)
• List of rented units in community

Once the lender receives the documents, the lender will review the documents thoroughly, paying specific attention to a few key details:

1. Does the borrower pass financial assessment? Spot approval is not available if the borrower fails financial assessment.
2. Are at least 50% of the units owner-occupied? At least 50% of units must be owner-occupied.
3. Are the project establishment documents publicly recorded? Can the project be legally operated? Project establishment documents need to be publicly recorded, and the project must be able to be operated legally.
4. Is there a reserve account that is separate from the operating account? There must be a separate reserve account.
5. Does the reserve account have at least 10% of the annual assessments (exceptions allowed based on reserve study)? There must be a funded reserve account.
6. Are more than 15% of the total units in arrears? There must be less than 15% of the total units in arrears
7. Has there been a financial distress event (bankruptcy, deed in lieu of foreclosure, receivership, or subject to foreclosure)? No financial distresses within the last 3 years are allowed.
8. Dos the condo meet the owner concentration requirements? If more than 20 units, no more than 10% of units can be owned by the same person; if less than 20 units, no person can own more than one unit.
9. If there is commercial/nonresidential space, is there independence between the commercial space and the residential space? It must be independent.
10. Is there an HO-6 policy in place that allows for full replacement? Full replacement is required.
11. Is there $1M of liability coverage or greater? $1M liability coverage is required.
12. If there are more than 20 units, is there 3 months’ worth of assessments of fidelity insurance?
13. Is the property in a category requiring exception or further review (detached condo, commercial/nonresidential space, live/work unit, subject to litigation)? Review the 4000.1 for the specific item needing further review.

If the lender determines that the condominium meets the eligibility for single unit approval, then they can proceed to process your loan as a condominium with a single unit approval.

An Important HECM-to-HECM Exception for Condominium Approvals

A recent change in HUD’s 4000.1 guidelines indicates that HECM Refinance transactions do not require a condominium project approval or a single unit approval. As HUD writes:

HECM Refinance transactions do not require Condominium Project Approval or Single Unit Approval. If the Unit is in a Condominium Project that has an FHA Condo ID, the Mortgagee must enter the FHA Condo ID when the FHA case number is requested.

While this may read as a lot of jargon to the untrained reader, it means that lenders do not need to check for approval when refinancing an existing HECM loan.

Therefore, if you have a HECM loan today and choose to refinance it, you do not need to worry about getting the condo approved again.

FNMA Limited Review Process for HomeForLife Loans

One of the great benefits of the HomeForLife loan is the limited review questionnaire. The limited review questionnaire is completed by a representative of the condominium association and it involves 15 questions to answer.

The representative from the condominium association does not need to provide documentation for their answers; they only need to answer the questions and provide comments for any answers.