Mountain Mortgage Guy: Getting a reverse mortgage on a condominium requires planning ahead (column)
The Mountain Mortgage Guy
As the population of Eagle County ages, more homeowners are finding that a reverse mortgage might be a valuable part of their retirement planning. As many homeowners are cashing out of their homes and downsizing to condos, it’s important to understand the process for getting a reverse mortgage to start with and the added layer of getting one on a condo.
For those who have never studied reverse mortgages, the short version is that if you are buying, then you will need to put down a large down payment, depending on the loan amount and your age (the older you are, the less you have to put down). If you are refinancing and paying off your current mortgage with a reverse, then the same parameters apply.
You need to be at least 62, and it helps if both spouses are at least that age. Typically you will need to put down 50 percent to 60 percent of the purchase price, and you can then get a mortgage for the balance of it. Typically the max you can borrow on a conventional reverse loan is in the mid-$300,000 range. However, we are starting to see some private portfolio reverse loans go much higher.
Instead of making monthly payments, the interest will accrue and be added onto the principal balance and eventually be payable when the property is sold or no longer your primary residence.
In the event there is equity left, you sell the property as you normally would and the reverse mortgage is paid off just like any other mortgage. In the event that there is no equity left due to the interest accruing, then you (or your heirs) simply sign the property over to the lender and walk away without recourse. You retain full title to the house at all times, subject to the lien of the reverse mortgage, just like you would with a standard mortgage.
Borrowers are required to pay the taxes and insurance and maintain the home. In the event it is not your primary residence for more than 12 consecutive months, then the loan can be called due, as well. If one spouse passes away, then the other spouse can continue to live there, as long as they were on the loan to begin with.
On a single-family, duplex and most townhomes, there are few issues with getting a reverse mortgage in terms of the property. Condominiums are another story. The Federal Housing Administration insures conventional reverse mortgage loans, and as such, the FHA must approve the condo project. Currently, there are two projects in all of Eagle County that are approved. If your dream retirement condo is located in one of the projects not approved, then the first step will be to get it approved.
The process of getting a condo FHA approved is not terribly demanding in terms of the makeup of the project. Typically the association must have sound finances, be current on its corporate filings and have a functioning homeowners association. Condo-tels or projects that have a highly visible number of short-term rentals are not going to make the cut for a conventional reverse, but it might be possible to work with a portfolio reverse lender to make that happen. Portfolio reverse mortgages typically have a higher rate than conventional.
There are companies we work with that do nothing but get condos approved for FHA. The fee to do so is about $1,000, and the process takes about a month. The approval is then good for the entire project for a two-year period. Expiration of the approval does not impact loans that are in place.
Reverse mortgages are complex transactions, and you will be well served by sitting down face to face with a knowledgeable loan originator to walk through the pros and cons.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage-related questions from readers. His website and blog can be found at http://www.mtnmortgageguy.com.