BREAKING NEWS! CO-OPS HAVE NOW BEEN APPROVED FOR REVERSE MORTGAGES IN NEW YORK STATE!
After much anticipation, co-op owners can now obtain a reverse mortgage on their individual co-op units in New York City and the state of New York.
See below for qualifications and steps for obtaining a reverse mortgage.
Reverse Mortgages for Co-ops in New York State
REVERSE MORTGAGES ON CO-OPS NOW APPROVED
In the past, reverse mortgages for senior homeowners with co-ops were unobtainable.
That has now changed!
In December, 2021, a bill was signed into law in New York state law that allows New York state co-op shareholders who are at least 62 years of age to take out a reverse mortgage on their co-op apartments. For those unfamiliar, a co-op (cooperative housing) is where most of the co-ops are reminiscent of apartment buildings of varying unit sizes and varying building sizes but where co-op owners buy shares in the housing complex. The co-op is governed by a board of directors, and unit owners have a proprietary lease on their homes. The operating expenses for co-ops are gleaned through monthly maintenance fees divided among cooperative shareholders and depend on the amount of square footage in each apartment as well as floor space and outdoor space.
There is now a proprietary reverse mortgage secured by the ownership interest in a cooperative apartment unit which allows shareholders to access funds. Note: The IRS does not consider the proceeds as income, therefore, the proceeds from a reverse mortgage is not taxable.
The below article regarding the governor's approval of co-op reverse mortgages states the following: "Since the Federal Housing Administration (FHA) does not permit Home Equity Conversion Mortgages (HECMs) on co-ops, the reverse mortgage activity for such dwellings will be limited to proprietary products in New York." And only one lender was approved by HUD (Housing and Urban Development) to do co-op reverse mortgages with their own proprietary product.
https://www.housingwire.com/articles/new-york-reverse-mortgage-co-op-bill-signed-by-governor/
The article in WestLaw.com further outlines how this will work:
- Lenders may now make reverse mortgages secured by shares or membership in a co-op apartment, subject to the restrictions in the law and forthcoming regulations (N.Y. Banking Law § 6-o(1)(a)).
- Reverse mortgages secured by co-ops must be approved by the co-op board of directors (N.Y. Banking Law § 6-o(2)(n)).
REVERSE MORTGAGE PARAMETERS
THE REQUIREMENTS & STEPS TO OBTAINING A REVERSE MORTGAGE ON A CO-OP ARE AS FOLLOWS:
AGE AND RESIDENCY REQUIREMENTS
Borrowers must be at least 62 years of age. *** The home must be the owner's primary residence for at least 6 months throughout the year.
REVERSE MORTGAGE COUNSELING
HUD has mandated that reverse mortgage counseling be required in order to obtain a reverse mortgage on any type of property.
KEEPING THE CO-OP IN GOOD REPAIR
The owner must keep their co-op unit in good repair especially if a loss or damage to their unit should occur.
MEETING FINANCIAL QUALIFICATIONS FOR THE LOAN
You are required to meet certain financial qualifications for the reverse mortgage including a history of on-time payments for property charges and co-op fees. The co-op unit owner must continue to pay co-op maintenance fees, common charges, and real estate taxes plus any other fees levied by the co-op throughout the life of the loan.
APPROVAL FROM THE CO-OPERATIVE'S BOARD OF DIRECTORS
Potential borrowers must receive approval for the reverse mortgage from the co-op board. Applicable co-op forms must be completed by the co-op board and returned to the lending company along with an application signed by you plus certain required documents.
The proprietary reverse mortgage offers many benefits and safeguards for the co-op reverse mortgage. Even if you have a current mortgage balance, as long as there is enough equity in your co-op, you can eliminate monthly mortgage payments while maintaining ownership of your your home.
BEST OF ALL, ON A CO-OP REVERSE MORTGAGE, THERE IS NO MAXIMUM CO-OP VALUE! ANY APPRAISED VALUE WILL WORK. AND THE PROCEEDS ARE TAX-FREE.
Please note: You must comply with all of the loan’s terms and pay your other payment obligations such as cooperative fees, insurance and maintenance fees. Failure to comply with the loan terms and pay your other payment obligations will cause the loan to become due and foreclosure may occur.
NO FHA MORTGAGE INSURANCE ON CO-OP REVERSE MORTGAGES
As mentioned, the reverse mortgage for co-ops in New York state is a proprietary reverse mortgage that is unlike the FHA HECM, Home Equity Conversion Mortgage which is insured by the federal government. There is no up-front FHA mortgage insurance premium (MIP) charged on this loan which is 2% of the appraised value and can be expensive.
It's a great thing that this loan was approved for co-ops!
REVERSE MORTGAGES ON YOUR CO-OP ARE NOT FOR EVERYONE. DO YOUR RESEARCH!
