A reverse mortgage, technically called a home equity conversion mortgage, lets seniors tap into the equity in their homes without having to worry about making payments while they live, or losing their home to their lender. While reverse mortgages are available from many different lenders, the Federal Housing Administration program is underwritten and guaranteed by the U.S. government. To take out an FHA reverse mortgage, your property will need to meet FHA's standards.
Basic FHA Requirements
The FHA applies the same basic requirements to their reverse mortgage product that they do to a regular mortgage product. It will underwrite loans on single-family residences or on multi-unit properties with two to four units if you occupy at least one of the property's units. To be able to take out a reverse mortgage on a condominium or manufactured home, it must meet HUD or FHA standards. Your property will also have to meet the same FHA flood insurance requirements and condition standards that apply to FHA purchase mortgages.
Issues Needing Repair
The FHA focuses on major safety, security and soundness issues when determining if a dwelling qualifies for a loan that it insures. For instance, if the property has evidence of active pest infestation, it would need remediation. The FHA also requires leaking roofs or roofs that are at the end of their lives to be replaired or replaced. Foundation damage, drainage issues, or major house systems that don't work won't pass an FHA appraisal inspection. The FHA is also worried about cosmetic damage in houses built before 1978, since it can present a risk of exposing lead-based paint.
As of 2013, FHA is less fussy than it has been in the past about minor defects. Houses with missing handrails, uneven sidewalks or loose carpet are acceptable, even though you might want to fix the issue for your own safety. Leaky faucets and messy crawl spaces also won't disqualify you. The net effect of this is that as long as your house is basically sound, wear and tear issues aren't going to prevent you from taking out a reverse mortgage.
While you own your property and it is subject to the reverse mortgage, you will be responsible for taking care of it. This includes paying for your homeowner's association policy, hazard insurance policy and flood insurance. The house needs to be maintained in the same condition that it was in when you closed on your reverse mortgage. This way, there will be enough value to pay off the loan and interest when your home sells.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.