Many retirees intending to stay in their current homes for the long haul often consider reverse mortgages as an ideal option. However, before benefiting from a reverse mortgage, homes must first meet specific eligibility criteria as the property may need modifications over time to address the evolving needs of the ageing residents.
The majority of reverse mortgages today are termed Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration (FHA), a subsidiary of the Department of Housing and Urban Development (HUD). Reverse mortgages are available to homeowners who are 62 or older, allowing them to transform a portion of their home equity into a loan that can be utilized freely. Contrary to a conventional mortgage, the loan balance on a reverse mortgage grows over time.
The key difference with reverse mortgages is that borrowers aren’t expected to make monthly repayments like in regular mortgages. The repayment of the loan amount is triggered when the borrower either passes away or permanently moves out of the property in question.
Most reverse mortgages are federally backed, meaning there are certain universal standards that properties must adhere to qualify for HECMs.
What property requirements are there?
Companion to established building codes: For FHA approval, properties need to align with any of the recognized building codes nationally, or with a state/local building code modeled on a nationally recognized code.
Home utilities: Although there are no explicit code requirements for the longevity of features like doors, windows, gutters, downspouts, paintings, wall coverings, kitchen cabinets, and carpets, HUD does set bare minimum standards to preserve the value of an FHA-insured home.
Safety: HUD mandates that the property should be void of hazards threatening the occupants’ health and safety or compromising the structural stability of the property.
Getting your home FHA-approved
To get a reverse mortgage, your house must meet and pass the FHA/HUD building standards and inspection before loan closure. The magnitude of the necessary work to meet these standards could be a hurdle to obtaining a HECM, but home repair and restoration companies like Fidelity Homestead Associates can help.
Acceptable properties for HECMs:
Eligible property types for FHA loans are single-family homes, 1-4 unit homes with one occupied by the borrower, HUD-approved condominium projects, and manufactured homes that meet FHA requirements. Even newly built homes are valid for HECMs upon having a certificate of occupancy issued by the local governing body and are fully completed and occupied by the owner.
Ineligible properties for HECMs:
HECMs cannot finance properties like housing cooperative units, boarding houses, bed and breakfast establishments, and certain modern manufactured homes built after 1976. To learn more about property eligibility for reverse mortgages, refer to HUD.gov or contact a trusted financial advisor.
