Are there any special requirements to consider when making an FHA mortgage on a leasehold property?

Leasehold refers to the right to hold or use property for a fixed period of time at a given price, without transfer of ownership, on the basis of a lease contract.  Leasehold Interests refer to real estate where the residential improvements are located on land that is subject to long-term lease from the underlying fee owner, creating a divided estate in the Property. 

Forward Mortgage Requirements:
A Mortgage secured by real estate under Leasehold requires a renewable lease with a term of not less than 99 years, or a lease that will extend not less than 10 years beyond the maturity date of the Mortgage. Sub-Leasehold Estates are not eligible for FHA mortgage insurance. 

HECM Requirements:
A reverse mortgage, or Home Equity Conversion Mortgage (HECM), secured by real estate under Leasehold requires a renewable lease for not less than 99 years, or a lease having a remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor. Sub-Leasehold Estates are not eligible for FHA mortgage insurance.  An appraiser must contact the Mortgagee if the Leasehold Interest does not meet this requirement. 

For additional information see Handbook 4000.1 II.D.3.c.i.(B)(1) and II.D.3.c.i.(D)  at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-04353