Explained: What Types of Houses Can Obtain a Reverse Mortgage?

A reverse mortgage is a financial tool designed to help homeowners aged 62 and older tap into the equity of their property to secure a loan. Unlike traditional mortgages, reverse mortgages do not require monthly repayments; instead, the loan balance is paid off when the homeowner moves out, sells the house, or passes away. However, not all types of properties are eligible for a reverse mortgage. This article explores the various types of houses that can qualify, with a special focus on mobile homes.

Mobile Homes or Manufactured Homes

Mobile homes (also referred to as manufactured homes) are often a popular choice for retirees looking for affordable housing options. These homes are eligible for reverse mortgages, but they must meet specific criteria to qualify. When considering financing a mobile home with a HECM or proprietary loan, homeowners should ensure their property meets the following requirements.

Key Requirements for Reverse Mortgages on Mobile Homes

• Built after June 15, 1976 – The home must have been constructed after this date because mobile homes built before this time may not meet the federal standards for safety and structural integrity.
• Permanent Foundation – The mobile home must be permanently affixed to a foundation. Homes that are on wheels or not permanently installed on a solid foundation may not qualify.
• Primary Residence – The mobile home must be the homeowner’s primary residence. A second or vacation home, even if it is a mobile home, does not meet the requirements for a reverse mortgage.

Since mobile homes tend to depreciate over time compared to traditional homes, the homeowner’s equity might be lower, which could affect the amount available through a reverse mortgage.

Single-Family Homes

Single-family homes are the most common type of property used for reverse mortgages. These homes have a greater potential for higher equity, making them an ideal candidate for this type of loan.

Key Requirements for Reverse Mortgages on Single-Family Homes

• Primary Residence – As with any reverse mortgage, the home must be the borrower’s primary residence.
• Eligibility Based on Property Value – A single-family home’s value will directly impact the amount of equity available for the reverse mortgage. The higher the value, the greater the loan amount a borrower may be eligible for.
• Condition of the Home – The home must be in good condition and meet specific health and safety standards, including ensuring the home is free from major structural issues.

Single-family homes are ideal candidates for reverse mortgages because they typically appreciate over time, giving homeowners more access to their equity.

Condominiums

Condominiums can also qualify for reverse mortgages, but there are some additional considerations compared to single-family homes.

Key Requirements for Reverse Mortgages on Condominiums

• Approval of the Condo Association – The condominium must be located in a community where the association is FHA-approved. This is crucial for a Federal Housing Administration (FHA)-insured reverse mortgage.
• Primary Residence – The unit must be the homeowner’s primary residence. Vacation condos or rental properties are not eligible.
• No Substantial Delinquent Fees – If the condo association has significant financial issues, such as unpaid fees or insufficient insurance coverage, this could affect eligibility for a reverse mortgage.

While many condominiums are eligible, it is important to verify that the condo complex is FHA-approved and meets all regulatory requirements before applying for a reverse mortgage.

Townhomes

Townhomes are similar to single-family homes but are typically part of a row or cluster of homes with shared walls on either side. These homes can qualify for a reverse mortgage, provided they meet the necessary criteria.

Key Requirements for Reverse Mortgages on Townhomes

• Primary Residence – The townhome must be the homeowner’s primary residence, just like a single-family home or condo.
• No Outstanding HOA Issues – Townhomes are typically governed by Homeowners Associations (HOA), and any outstanding debts or legal issues with the HOA may affect eligibility.
• Property Value – The amount of equity a homeowner can access from a townhome will depend on its value. Townhomes often have a lower market value compared to single-family homes, which may result in a smaller reverse mortgage loan.

As with other types of homes, the homeowner must ensure the townhome is well-maintained and up to local housing standards to qualify for a reverse mortgage.

Multifamily Homes (Up to Four Units)

Some homeowners with multifamily properties, such as duplexes or fourplexes, can qualify for a reverse mortgage. These properties must meet similar requirements as single-family homes but with additional considerations regarding rental income.

Key Requirements for Reverse Mortgages on Multifamily Homes

• Primary Residence – The borrower must live in one of the units as their primary residence. The other units can be rented out.
• Property Condition – Like single-family homes, multifamily homes must meet local housing codes and pass a health and safety inspection.
• Owner-Occupied – To qualify for a reverse mortgage on a multifamily property, the borrower must occupy one of the units. The other units can be rented out, which may provide the homeowner with a source of income.

If the homeowner rents out units of the multifamily property, the rental income does not affect the eligibility for a reverse mortgage, but it may influence the equity available for the loan.

Farmhouses and Rural Properties

Farmhouses and rural properties can also be eligible for reverse mortgages. These homes may have more land and acreage, which can influence the loan’s approval process.

Key Requirements for Reverse Mortgages on Farmhouses and Rural Properties

• Primary Residence – The home must be the borrower’s primary residence.
• Appraisal and Property Value – These properties often have large amounts of land, which may require a more thorough appraisal to determine the value of the property. In some cases, rural properties may not qualify if the appraised value is too low or the land is not considered suitable for a reverse mortgage.
• No Special Zoning Issues – If the property has special zoning restrictions or is considered agricultural land, this may limit eligibility. The property must be in good condition, and there should be no issues with its usability.

Farmhouses may qualify for reverse mortgages, but the borrower should be prepared for additional paperwork and potentially a more complicated process due to the unique nature of rural properties.

Vacation Homes

Generally, vacation homes are not eligible for reverse mortgages. The Federal Housing Administration (FHA), which insures most reverse mortgages, requires the home to be the borrower’s primary residence. However, there may be certain exceptions for vacation homes that are temporarily unoccupied due to personal circumstances, but these cases are rare and require special approval.

Why Vacation Homes Usually Don’t Qualify

• Primary Residence Requirement – FHA and HUD regulations stipulate that the reverse mortgage must be on a primary residence. Since vacation homes are not a person’s primary living space, they do not qualify.
• Property Value – In addition, second homes or vacation homes tend to have a much lower level of equity compared to the primary residence, further limiting eligibility.

For homeowners looking for a reverse mortgage on a vacation home, they may need to convert the vacation home to their primary residence for a certain period before applying.

Conclusion

A reverse mortgage can be a helpful financial tool for seniors who want to convert the equity in their home into funds for their retirement. While many types of properties can qualify for a reverse mortgage, there are specific requirements that need to be met for each type of home. Mobile homes, single-family homes, townhomes, and multifamily homes are among the most common types of properties that can obtain a reverse mortgage. However, homeowners must ensure that their property meets all eligibility requirements before applying. With proper planning and understanding of the qualifications, seniors can take advantage of the equity in their homes to enjoy a comfortable retirement.