Reverse mortgages are a popular tool for retirees to supplement income in their golden years. Homeowners aged 62 and older can convert home equity into tax-free cash without selling their property or making monthly mortgage payments. However, not all properties qualify for reverse mortgages. In this blog, we explore eligible property types and important considerations for homeowners considering this financial option.
1. Single-Family Homes
Single-family homes are the most common type of property eligible for a reverse mortgage. Homeowners who reside in single-family residences, whether it’s a detached house or a townhouse, can generally apply for a Home Equity Conversion Mortgage (HECM), which is the most popular type of reverse mortgage insured by the Federal Housing Administration (FHA). The property must be the primary residence of the homeowner, meaning it should be their main place of residence for most of the year.
2. Multi-Unit Properties
Some multi-unit properties can also qualify for a reverse mortgage, as long as the homeowner occupies one of the units as their primary residence. For instance, if you own a duplex, triplex, or fourplex, and you live in one of the units, you may be eligible for a reverse mortgage. However, only the portion of the property used as the primary residence is considered for the reverse mortgage calculation.
3. FHA-Approved Condominiums
If you own a condominium and wish to apply for a reverse mortgage, the condominium complex must be FHA-approved. The FHA maintains a list of approved condominium projects, and only units within these projects can be eligible for an HECM reverse mortgage. Ensuring that your condo complex is on the approved list is crucial before proceeding with a reverse mortgage application.
4. Manufactured Homes
Manufactured homes, sometimes referred to as mobile homes, can also be eligible for reverse mortgages if they meet certain requirements. The homeowner must build the home after 1976 and place it on a permanent foundation on land they own. Additionally, the manufactured home must meet FHA guidelines for safety and structural integrity.
5. Planned Unit Developments (PUDs)
Planned Unit Developments (PUDs) are residential communities where homeowners own both their individual units and a share of common areas and amenities. PUDs are also eligible for reverse mortgages, provided they meet the FHA’s requirements and guidelines.
Reverse mortgages can be a valuable financial tool for eligible homeowners seeking to access their home equity during retirement. Understanding the types of properties eligible for reverse mortgages and carefully considering the implications is crucial before making a decision. Considering a reverse mortgage? Consult a financial advisor or HUD-approved housing counselor to assess your unique situation and explore retirement planning options. Remember, this significant financial decision can have long-term implications, so weigh all pros and cons before moving forward.