Welcome to “Ask the Pros” – where your questions meet the wisdom of those who understand the ins and outs of reverse mortgages! If you have questions about unlocking the power of your home equity, navigating the ins and outs of reverse mortgages, or making informed decisions about your financial future, you’re in the right place.
In this exclusive series, we tap into insights and expertise directly from our wonderful team members at Longbridge Financial who are helping to shape the reverse mortgage industry each day. Our team of seasoned professionals are committed to fielding common questions, unraveling complexities, and providing invaluable insights to empower you on your financial journey.
Whether you’re a homeowner considering a reverse mortgage, a financial advisor seeking new perspectives, or are simply curious about the unique retirement tool, “Ask the Pros” is your go-to source for reliable insider information. Join us as we explore the nuances of reverse mortgages, debunk myths, and uncover strategies for leveraging home equity in retirement.
Our next pro in this series is Jerry Auippa, a Certified Reverse Mortgage Professional (CRMP) and Senior Account Executive here at Longbridge Financial. Jerry is part of an amazing team that helps educate financial advisors about strategic uses of home equity for their clients. We sat down with Jerry to get an inside look at the different property and occupancy requirements of reverse mortgage loans.
Q: What are the property and occupancy requirements for a reverse mortgage?
A: There are specific property and occupancy requirements for all reverse mortgage loans, in addition to borrower qualifications and obligations. However, there is a specific set of guidelines for Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgage and the only one insured by the Federal Housing Administration (FHA). During the HECM loan process, an appraisal is completed on the subject property not only to assess the home’s value but also to determine if the home meets the requirements set by the FHA.
Many single-family homes, 2-to-4-unit dwellings, modular and manufactured homes, and FHA-approved condos could qualify for a HECM. However, the FHA has set additional requirements for manufactured homes and condos (I’ll cover more on those requirements later!) For owners of these properties, it’s important to speak with a trusted reverse mortgage consultant who can discuss these qualifications in more detail.
For HECM reverse mortgages, there is also a maximum home value set by the FHA – called a lending limit. For homes valued higher than this amount, lenders must use this lending limit as the home value for the purposes of the loan. Alternatively, some lenders offer proprietary jumbo reverse mortgages – like Longbridge Financial’s Platinum program. This and other alternative reverse mortgage products are designed to help homeowners with higher home values (above the FHA lending limit) and those who own properties that don’t meet FHA requirements for HECM loans. For example, many condos and condominium complexes are not approved by the FHA and are therefore ineligible for a HECM. That’s where an option like Longbridge Platinum comes in!
Aside from property-type requirements, the appraisal conducted as part of the loan process must also determine if the home meets minimum health and safety requirements. For older homeowners who have lived in their homes for many years, there may be repairs that need to be addressed. This is understandable and not uncommon, so if your home needs some attention, this is something a reverse mortgage consultant can discuss further with you when the time comes. The good news is most non-health or safety items can typically be corrected after the loan closes. In this case, a “repair set-side” will be established, meaning funds from the loan are set aside so they can be used for required repairs if needed.
Once a loan has closed and funded, the borrowers must occupy the home as their primary residence. It’s not uncommon for seniors to spend time at a second home, especially those living in colder climates. If you have a reverse mortgage and plan to be away from your home for more than 60 days, it’s important to call your lender’s servicing representatives to let them know.
A question I often get asked is, “What happens if one of the borrowers passes away or must vacate the home for institutional care?” As a lender, we understand this is a real concern, but there are important borrower protections built into the loan that can help. As long as one borrower or eligible non-borrowing spouse continues to occupy the home as their primary residence, nothing changes. Of course, they must continue to maintain the terms of the reverse mortgage, including keeping up with property taxes, homeowners insurance, and home maintenance. It’s not until the final borrower passes away or voluntarily vacates the home that the loan becomes due and payable. If you are considering Longbridge as your lender or are already a borrower of ours, we have a fantastic servicing website with a section dedicated to FAQs and a host of servicing professionals who can work with you or your loved ones when your loan comes due.
Q: What types of homes and properties are eligible for a reverse mortgage?
A: As previously mentioned, most single-family and 2-to-4-unit dwellings, modular or manufactured homes, and FHA-approved condos are eligible for HECM reverse mortgages. For condo complexes that do not have full FHA approval, your lender can help apply for approval using the single-unit condo approval process. With that said, it’s important to note that the entire condo project must still meet the requirements set by the FHA.
There are additional requirements for manufactured homes. For example, the home must have been constructed in or after June 15, 1976 in compliance with the Federal Manufactured Home Construction and Safety Standards, the home and site must exist together as real estate, it must have been moved from the factory or dealer directly to the home site, and it must be on a permanent foundation, and it must have a floor area of not less than 400 square feet. It also can’t be in a flood zone. At Longbridge, part of our team’s process is to discuss the features of your property with you and address any potential issues along the way.
Of course, there are some property types or use cases that are not eligible for a reverse mortgage. Some examples include a second or vacation home, investment properties, homes used for bed and breakfast purposes, co-ops, and homes with more than one accessory dwelling unit. Again, these are details that can be discussed with a reverse mortgage consultant, depending on your individual situation.
I think it’s also relevant to mention something that is becoming more and more popular among older homeowners: buying a new home using a reverse mortgage. This is called a “Reverse for Purchase,” and we are seeing this a lot as more seniors want to “rightsize” to a home with less maintenance or perhaps closer to family in retirement. And the same property and occupancy requirements apply for these Reverse for Purchase loans depending on whether a HECM or proprietary reverse mortgage is used.
Q: What is an “Annual Occupancy Certificate” and what does it entail?
A: An Annual Occupancy Certificate is a document that reverse mortgage borrowers must sign and return to their lender each year to confirm that they are still living in the home. The lender requires this certificate to ensure that the borrower continues to meet one of the key requirements of the reverse mortgage: maintaining the home as their primary residence. It’s a simple thing, but it’s very important.
The month prior to the anniversary of the loan, you’ll receive the Annual Occupancy Certificate in the mail that you can then complete and return to your lender’s loan servicing department. This can be done via fax or by mail, but I always encourage borrowers to set up their servicing account online so they can do things like this right from their computer. This gives you access to your loan information 24/7!
Thank you, Jerry, for sharing your insights and providing valuable information about reverse mortgage property and occupancy requirements!
If you’re interested in learning more about reverse mortgages and to find out if you qualify, contact our team today. Our reverse mortgage consultants will get to know you and your financial situation to help you determine whether a reverse mortgage is the right fit for you. Empower your financial journey – reach out to Longbridge Financial now to make informed decisions about unlocking the Power of Home®️.