A Condo Reverse Mortgage – How Are the Rules Different?

A couple sits near the water in front of condos.

Editor’s Note: This post was originally published in August 2014 and has been completely updated to include the potential change to bring back a single-unit approval process (located at the bottom of the article).

If you are looking to take out an FHA reverse mortgage against your condo or are looking to buy a retirement or vacation condo using an FHA reverse mortgage purchase loan, it’s important to know that the rules are completely different from fee simple properties (where you own the land in addition to the building).  The entire condo complex must be approved by the Department of Housing & Urban Development (HUD) before your loan can be processed.

You might ask why, and there is a pretty simple explanation. The marketability of an individual condo unit is heavily dependent on the health of the complex, financial and otherwise. Say, for example, that one investor owns 25% of the units and files for bankruptcy. If all of those units hit the market at the same time, the property values would be adversely impacted. It could also put the association in bad shape financially, as they would no longer be collecting dues from 25% of its condos.

How to find out if you condo complex is approved?

The HUD condo list is public information and readily available for you to view. Use this link to the HUD Condominium page, type in your zip code, and hit send. If you don’t see your complex listed, then your condo is not currently approved. If it is listed, look under the status column to see if it is approved or rejected (while also noting the expiration date). If expired, the complex will have to go through the renewal process with HUD.

If you don’t share any walls with another unit, your home might be considered a “site condo” and not need to be FHA approved. This is a very small percentage of condominiums and there are five main requirements for a unit to be considered a site condo.

Qualification guidelines

Reverse Mortgage Condo

Due to the risk involved, HUD requires a condo complex to seek approval for a period of two years. Before the two year period is up a complex can re-certify to continue their approval. Below are some of the main reasons that a complex might be declined.

  • Not contributing 10% of total annual revenue to reserves
  • Leasing guidelines aren’t HUD compliant
  • Pending litigation or special assessments that will greatly affect marketability
  • Insurance issues (hazard, fidelity, flood, etc.)
  • Not 50% owner occupied or one investor owns > 10% of the units
  • Too many units are in arrears on HOA dues

What is the next step in getting approval?

The application to HUD can be handled by Premier Reverse Mortgage for no fee, but we will need your homeowner’s association or management company to be willing to participate. We waive our fee with the expectation that you will use us for a reverse mortgage after the approval is complete. Most reverse mortgage companies are going to charge a fee to assist with the process or refer you out to a for-profit company set-up for this sole purpose.

One of the biggest challenges that we run into on a regular basis is the lack of desire and sense of urgency from a homeowner’s association, often due to misinformation about reverse mortgages. At the present time, it’s hard to complete the 30-60 day approval process with HUD without having a willing contact at the HOA or management company. The main reason is that we need a balance sheet that is less than 90-days old and some other information that most residents won’t have access to.

If your HOA is willing to proceed, then it is best to put them in touch with us to begin collecting the required documentation. We can assist them with certain items that are more challenging than others, and answer any questions they have. We’ll also be the main point of contact with HUD on the approval as we understand their methodology from past experience.

What if my HOA is not willing or says we were declined in the past?

Unfortunately, there is not a current workaround if your complex was declined for a reason that cannot be remedied. We can usually look up the reason why your complex was declined, and discuss that with you. There are many instances of a complex being “declined” that need to make an easy correction to get approved, such as simply missing a required document in the original submission. It is often ignored because HUD uses the term “declined” vs. “pending” or “more information needed.”

If your HOA is not willing to proceed with the application, you might be able to get all the documentation we need for approval. It would be best to contact us directly for the list of items needed to proceed. We will help you out as much as possible.

Will there ever be any changes to the rules, such as bringing spot approval back?

Couple on Bench

Based on our expectations, the answer is “yes, with some changes.”  If you have a neighbor that took out a reverse mortgage against their condo without having to jump through all the hoops, it’s because they took one out prior to the rule change in February 2010. Prior to that date, one could get their individual condo unit approved for an FHA loan with very little paperwork and just a little help from their HOA.  It was called the “spot approval” process.

We know that HUD will not bring the spot approval process back in its previous form due to abuse and poor oversight of the process.  The great news is that HUD proposed a single-unit approval process in their most recent proposed rule in the Federal Register that was posted on September 28, 2016.  They allowed the public to comment for sixty days before closing the comments on November 28, 2016.  While they did not get into great detail on how the single-unit approval process would work, it was a big step to returning to the old way of doing business.  Now we wait while HUD discusses each comment and decides on how to proceed.  That process can take many months and they are not allowed to comment, so we are kept in the dark.  If you would like to read the proposed rule or comments, including my own, please click here.

For those of you that are stuck with a condo association that will not cooperate or a complex that does not meet the current approval criteria, how are you staying up to date on what is happening?  I put out an email newsletter once per month that will update you on any information we are hearing about the condo process changing.  You will not be sent emails more frequently than that.  My suggestion is to sign up using our stay informed link, so you can keep abreast of these potential changes.

I am hopeful that the single-unit approval process will be allowed in the near future, and I look forward to working with many of you when that happens.  If you have any questions please don’t hesitate to contact me.

30 thoughts on “A Condo Reverse Mortgage – How Are the Rules Different?

  1. My mother is interested in getting a reverse mortgage. Her home is a single family home, but it is zoned a condo. We called HUD, and she said it is a Site Condo. My mom pays her own taxes, etc., the dwellings are not attached, we do not share any common areas, there is no condo association or fees. She is having a difficult time finding a company that will work with her. Is this something you could help with possibly?

    1. Hello Joan. We do take site condos. The main question is whether she is responsible for all of the insurance and maintenance of her home. If that answer is “yes”, she is likely eligible for a reverse mortgage without getting the whole condo complex approved.

  2. How do I contact you directly, because my condio assoc may not be interested in helping me get the HUD approval. Also, the condo is owned by my deceased mothers trust, and I am the successor trustee, and I here in the condo full time permanently.

    1. Hello Sue. You can contact me directly at (800) 996-5361 or matt@premierreverse.com. It’s tough to get a condo complex approved without the assistance of the association, due to the documents that we need to get the approval. The hardest item to obtain is a recent balance sheet showing cash on hand.

      To obtain a reverse mortgage against the condo, you’ll need to make sure you’ve successfully transferred the title from your mother’s trust to your name. That can be done while we are working on the condo approval.

  3. About a year ago we purchased a Condo in a new project. At the time I did not know that the project was not FHA approved. I am eighty two years old and could not obtain a conventional mortgage. I went into our savings and bought the unit. Now we want to reverse mortgage the Condo, but the association is not willing to do anything for us. Is there any hope in the near future we can spot finance with FHA. I would appreciate any information on this subject that you can provide.

    1. Hey Donald. I am still of the belief that if enough pressure is put on HUD that they will change back to some kind of spot condo approval. I am going to update my condo post in the near future with the different parties that you can reach out to. It’s best that they hear directly from you about how you’ve been negatively impacted by their current methodology.

      Unfortunately, at this time, I am not hearing any new updates on them making the change. With that being said, I would suggest continuing to be persistent with your current association president or management company that you need to get a few items from them, so we can complete the condo approval for you. Feel free to contact me directly by phone or email to discuss further. Good luck!

  4. My mother owns a condo. Some years back she looked into doing a reverse mortgage, and because one unit was purchased by a buyer using FHA financing, it disqualified her from doing a reverse mortgage. I believe no more than 25% of the units could be FHA financed in order for Mom to get the RM. Is that rule still in place?

    1. Good afternoon Linda. The maximum FHA concentration in one complex can be 50%, so if your mother’s reverse mortgage would take the percentage over 50%, she would have to ask for an exception. The exception requests are sent by the lender to the local HUD office that completed the condo complex approval. They have the authority to approve an FHA concentration up to 100% if they feel the complex is sound. Sound would be defined as financially stable and meeting all of their other requirements.

  5. I applied for a reverse mortgage in July 2015. I completed everything only to learn that my HOA let their HUD certification lapse in June, 2015. They do not intend to renew it. Do I have any recourse here? Is there any way around it?

    1. Hello Roselee. I’m sorry to hear that you went through all of that. Your loan officer should have made you aware of the issue and kept you from moving forward until it was addressed.

      On the issue of whether you have any recourse, you would have to seek legal advice on that. I’m not sure what a judge would think about a homeowner’s association refusing to help a resident (or residents) obtain financing against their unit. I do intend to engage a few attorneys in the future to have this discussion.

      As to whether there is any way around your complex seeking FHA approval, the answer is no, at least for now. The current FHA rules require a condo complex to be approved before a unit owner can obtain a reverse mortgage (or any FHA loan). The approval is only good for two years and has to be renewed for it to continue. We are hopeful that the changes HUD has proposed, that are awaiting the Obama administration’s approval, contain language that will take the power away from the association and move it back to the individual.

  6. When it comes to Reverse Mortgages, my concern is when owners default on their mortgage (walk away), the other owners are stuck with making up the difference because of the lost of that HOA fee. This can be very problematic due to a reverse mortgage.

    1. Hello Renda. Thanks for your comment and I understand your concern. There are a significant number of heirs that allow the reverse mortgage loan to go into foreclosure after the borrower (their family member) has passed away. HUD is working to address the issue by proposing a “cash for keys” program where they encourage the heirs to sign the deed over to the lender in lieu of foreclosure, particularly on underwater loans. No one wants the foreclosure to take place, as that is the worst outcome for all parties to the transaction. Keep in mind HUD also won’t allow the home to be sold for less than 95% of the appraised value, so they are protecting against a low sale in a condo complex.

      My question to you is, why is this only a concern that you have in regards to reverse mortgages? This is not an issue exclusive to this lending product. There are foreclosures of conventional mortgages taking place daily. Are you located in one of the 20 super lien states that allow a homeowner’s association lien to take priority over a mortgage lien? I don’t understand why your association would allow that debt to go unpaid versus filing a lien against the property for the unpaid association dues.

  7. Hi Matt,
    My mother owns a condo and last year we transferred it to my name but she has life use of the property. I am 55 years old. Will this disqualify her from a reverse mortgage?

    1. Hello Stacey. No, she is not disqualified. Your mother is eligible for a reverse mortgage if the title to the home is transferred back to her. She must be able to prove that she occupies the property as her primary residence. This is usually done with several months of utility bills.

  8. Hi Matt,
    We moved here about 18 months ago. We decided that a reverse mortage might be right for us. We live in a condo that does not share more than two wall. We have tried to get approval from HUD, we were turned down said they needed more info site plan and questioned the fact that there was not enough money in reserve and something about having enough ins . They asked for more info , we sent it and was turned down again. Theysuggested that we ask for a private aduit and a independant reserve study. Is there anything we can do. Find out 2 more people here want to do RM also. Thanks for any help you can give.Connie

    1. Hello Connie. I’ll be happy to look into this for you, but I’ll need to know the name of the complex and zip code of it. If HUD requires you to obtain a reserve study, it is because they are concerned about your complex’s ability to fund future capital projects (repair & maintenance). It could be the only issue keeping your complex from obtaining FHA approval or there could be more items. That’s what I’ll need to look into. Has your association looked into the cost of a reserve study?

  9. I WILL LIKE TO KNOW WHAT IS THE PROBLEM WITH THE ASSOCIATION, I BEEN LIVING IN MY CONDO FOR 28 YEARS IT IS PAID OFF, NOW IM 63 YEARS AND I WANT TO DO A REVERSE MORTGAGE BUT THEY KEEP TELLING ME THAT FHA DOES NOT ALLOWED CONDOS ANY MORE
    WHAT PISS ME OFF IS THAT THE ASSOCIATION PRESIDENT DID IT IN 2008 AND OTHER NEIGHBORS TOO, BUT NOW THAT I HAVE THE AGE I CANT, THAT IS NOT FAIR BECAUSE I HAVE THE RIGHT TO DO IT TOO, THEY NEVER RENEW IT THEY LET IT EXPIRED SINCE 2011, PLEASE LET ME KNOW WHAT ACTION TO TAKE, THANK YO SO MUCH FOR YOUR HELP WITH THIS MATTER

    1. Hello Ibis. To get a reverse mortgage against your condo, the entire complex must become FHA-approved. HUD/FHA changed the rules in 2009-2010 to make it more challenging to get financing against a condo.

      I’d be more than happy to speak with your association contact to discuss the possibility of applying for FHA-approval. There are some basic questions that I’d like to ask that person to make sure your complex is eligible.

  10. I am new at this – where do I go to write to HUD to implore them to help out we seniors who need a reverse mortgage on our non FHA approved condo?

    Many thanks for a great forum!

    1. Hello Jeff. You can always write HUD to express your desire for them to change their condo policy. It is my understanding that HUD has made some proposed changes, but they are stalling out at the desk of the Office of Management & Budget (OMB). We are unsure if those proposed changes include a return of the spot condo approval process.

      I’m happy to provide you with the names and addresses of the decision makers at HUD.

  11. what if this complex is a high end condo ( over 800000) and is not sold out? can it still qualify for hud approval ? If buyer only wants a 400000 rm, and the hoa has 100000 in its account

    1. Hello Tom. HUD doesn’t care what the market value of the units are, so the high end portion of your question doesn’t have any bearing on FHA approval. The building or phase will need to be 30% sold for the complex to seek FHA approval. The association having $100K in its account is a good sign, but it may or may not be enough depending on the size of the complex and cost of insurance deductibles.

  12. HI! I WOULD LIKE TO APPLY FOR A REVERSE MORTGAGE. MY UNIT IS FULLY PAID FOR I. E., 100%
    EQUITY. HOWEVER, THE HOA IS NOT FHA CERTIFIED. ALL REQUIREMENTS ARE AVAILABLE.BUT THE CONDO MGT SAY THAT THE CONDO DECLARATIONS ALLOW ONLY FOR MAXIMUM 25% OF UNITS TO BE LEASED BY INDIVIDUAL OWNERS AS RENTALS. THE BOARD CLAIMS THAT FHA SAID
    THIS LIMITATION IS NOT ALLOWED BECAUSE IT IS DISCRIMINATORY. IS THIS TRUE? IF NOT, WHAT
    DOES THE FHA REQUIRE AS MINIMUM % OF RENTALS FOR FHA TO CERTIFY A CONDO ASSN (OF COURSE THE OTHER REQUIREMENTS ARE COMPLIED).

  13. HI! I WOULD LIKE TO APPLY FOR A REVERSE MORTGAGE. MY UNIT IS FULLY PAID FOR I. E., 100%
    EQUITY. HOWEVER, THE HOA IS NOT FHA CERTIFIED. ALL REQUIREMENTS ARE AVAILABLE.BUT THE CONDO MGT SAY THAT THE CONDO DECLARATIONS ALLOW ONLY FOR MAXIMUM 25% OF UNITS TO BE LEASED BY INDIVIDUAL OWNERS AS RENTALS. THE BOARD CLAIMS THAT FHA SAID
    THIS LIMITATION IS NOT ALLOWED BECAUSE IT IS DISCRIMINATORY. IS THIS TRUE? IF NOT, WHAT
    DOES THE FHA REQUIRE AS MINIMUM % OF RENTALS FOR FHA TO CERTIFY A CONDO ASSN (OF COURSE THE OTHER REQUIREMENTS ARE COMPLIED).

    1. Hello Fe. That’s a good question. Your condo association is likely mistaken about why they might not qualify for FHA financing. HUD doesn’t care that your complex limits the rentals to 25% of the units. That’s perfectly reasonable as they don’t allow more than 50% to be rentals. Without reviewing your declarations/bylaws, I’m assuming your complex requires board approval for new tenants. That is what HUD has a problem with as it leaves open the possibility of discrimination. I’d be happy to take a look at your declarations if you’d like to have another opinion.

  14. Hi. I want to buy a condo in Ft Meyers. Fla. The complex consist of 10 phases. Not one is FHA approved. THe president of the phases I am interested in is willing to apply for certification, however I understand that 51% of the owners must be permanent residents as required by law. Is this true and are there any plans to
    change this, Is this a federal rule or state rule and where can I find this rule and watch it to see if it mis changed. Thank you

    1. Hello Frank. The FHA/HUD owner occupancy rules for condominiums recently changed. The new owner occupancy percentage can go as low as 35%, but it requires 20% of the budget being put into reserves per year and a three-year history of strong financials. If those terms aren’t met, the minimum owner occupancy is 50%. Keep in mind that isn’t just permanent residences. That is primary residences & second homes combined.

  15. You can use a reverse mortgage to purchase a condominium assuming it is FHA-approved. We don’t charge a fee to help our customers get a complex FHA-approved as part of a purchase or refinance transaction.

    1. Hello Julie. You are now subscribed to my monthly newsletter that provides a monthly update on condo changes within FHA. I’ll also update my post in the coming days to reflect the newest information available.

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