Can You Get a Reverse Mortgage on a Commercial Property? (w/Examples) + FAQs

No, you absolutely cannot get a standard reverse mortgage on a property that is purely commercial. The two are fundamentally incompatible, existing in entirely separate financial and legal universes. This isn’t a simple lender preference; it’s a hard-and-fast rule baked into federal law.

The primary conflict stems from a direct collision between two governing principles. The Home Equity Conversion Mortgage (HECM), which accounts for nearly all reverse mortgages in the U.S., is governed by the U.S. Department of Housing and Urban Development (HUD) and operates under a strict “Principal Residence” mandate.¹ This rule dictates the property must be the borrower’s primary home. Commercial real estate, however, is defined by its use in “Business Activity” to generate profit, placing it under the oversight of commercial banking regulators like the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC).⁵

This regulatory clash means a property cannot legally be a personal home and a business asset at the same time for the purposes of these specific loan types. This reality is critical for the more than 33 million small business owners in the U.S., many of whom own their properties and see them as a potential source of capital.¹⁰ Understanding this barrier is the first step toward finding a viable solution.

Here is what you will learn by reading this guide:

🏛️ The Unbreakable Rules: You will understand the specific federal regulations that prevent reverse mortgages on commercial properties and the severe consequences of trying to bend them.
🔍 The 25% Exception: You will learn about the one narrow loophole for mixed-use properties and the strict criteria you must meet for your home-based business to qualify.
💰 Three Powerful Alternatives: You will discover three proven financial tools—commercial equity lines of credit, cash-out refinancing, and sale-leasebacks—that are designed to unlock the equity in your business property.
📝 Real-World Scenarios: You will see clear examples of how different types of business owners use these alternatives to achieve their specific financial goals, from managing cash flow to funding a multi-million dollar expansion.
🚫 Costly Mistakes to Avoid: You will learn about the most common and expensive errors business owners make when trying to access their property’s equity and how you can avoid them.

Why Your Business Property and a Reverse Mortgage Are Like Oil and Water

To truly grasp why a reverse mortgage on your office building or retail shop is a non-starter, you have to see these financial products for what they are. They were born from different needs, are governed by different philosophies, and serve entirely different masters. One is a consumer protection tool for seniors; the other is a risk-managed instrument for business.

Deconstructing the Reverse Mortgage: A Tool for Your Home, Not Your Business

A reverse mortgage is a special type of loan created for older homeowners, specifically those aged 62 and up.¹ The most common version by far is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA), an agency within HUD.¹⁴ It gets the name “reverse” because, unlike a regular mortgage where you make monthly payments to a lender, the lender makes payments to you.¹⁶

The loan balance grows over time as interest and insurance fees are added on.¹⁷ The loan typically only becomes due when the last borrower sells the home, moves out permanently, or passes away.¹⁹ The entire program was designed with a single public policy goal in mind: to provide financial stability that allows seniors to “age-in-place” in their own homes.²²

Because of this specific mission, the eligibility rules are strict and non-negotiable. At the very top of that list is the “Principal Residence” mandate.¹ This legal term means the property must be the home where you physically live for the majority of the year. If you move out for more than 12 consecutive months, the loan goes into default and must be repaid immediately.¹² This rule alone makes any property used purely for business instantly ineligible.

Defining Commercial Property: An Engine for Profit

Commercial property, often called commercial real estate (CRE), is defined in the simplest terms as real estate used for business activities with the intent to generate a profit.²⁴ This profit can come from rental income paid by tenants or from selling the property for more than you paid for it (capital gains).⁷ This category covers a vast range of buildings that are fundamentally different from a personal home.

Examples of commercial property include:

Office Buildings: From a small downtown office to a massive corporate campus.²⁶
Retail Properties: Shopping malls, strip centers, standalone restaurants, and “big-box” stores.²⁶
Industrial Properties: Warehouses, distribution centers, and manufacturing plants.²⁶
Multifamily Residential: Apartment buildings with five or more units are legally considered commercial real estate.²⁶
Hospitality: Hotels and motels.²⁶
Special Purpose: A broad category including everything from medical centers and self-storage facilities to car washes and amusement parks.²⁶

The single unifying trait of all these properties is their economic purpose. They are business assets, not personal dwellings.

The Regulatory Clash: Consumer Protection vs. Commercial Risk

The final, insurmountable wall between reverse mortgages and commercial property is the regulatory framework. These two worlds are governed by completely different agencies with opposing philosophies. The HECM program is a creature of consumer protection policy, while commercial lending is governed by banking safety and risk management.

HECMs are administered by HUD and insured by the FHA.² Every rule is designed to protect senior homeowners. For example, before you can even apply, you must complete a counseling session with a HUD-approved counselor to ensure you understand the loan’s risks and are not being pressured.³⁴ The program’s goal is to help seniors use their home equity for living expenses, medical bills, or home repairs, safeguarding their quality of life.⁵

Commercial real estate lending, on the other hand, is overseen by banking regulators like the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC).³⁶ Their guidelines are not about protecting the borrower; they are about protecting the bank. They focus on ensuring the bank manages its risks prudently when lending on commercial assets.²⁶

A commercial loan isn’t approved based on your age or personal needs. It’s approved based on the property’s ability to make money. Lenders analyze metrics like Net Operating Income (NOI), Debt Service Coverage Ratio (DSCR), and local market conditions to see if the property generates enough cash to pay the mortgage.³⁸ The property is treated as a business asset, plain and simple.

| Feature | HECM Reverse Mortgage | Traditional Commercial Mortgage |

|—|—|

| Primary Goal | Provide funds for senior homeowners (62+) to live in their homes. | Finance a property used for business or to generate rental income. |

| Eligible Person | Homeowner aged 62+ living in the property as their main home. | A business, investor, or individual. Age is not a primary factor. |

| Eligible Property | The borrower’s main home (e.g., single-family house, 1-4 unit building). | An income-producing or business-occupied property (e.g., office, retail, 5+ unit apartment). |

| How It’s Repaid | No monthly payments required. Loan is repaid when the owner dies, sells, or moves out. | Regular monthly payments of principal and interest are required. |

| Loan Balance | Increases over time as interest and fees are added. | Decreases over time as payments are made. |

| Main Regulator | U.S. Department of Housing and Urban Development (HUD) / FHA. | Office of the Comptroller of the Currency (OCC), FDIC, and other bank regulators. |

| How It’s Approved | Based on borrower’s age, home’s value, and ability to pay taxes and insurance. | Based on the property’s income, market conditions, and the business’s financials. |

The One Narrow Exception: When Your Home is Also Your Business

While a reverse mortgage is impossible for a standalone commercial building, a small gray area exists for properties that are mostly a home but have a small business component. For owners of these “mixed-use” properties, getting a HECM isn’t an automatic “no,” but it is subject to a very strict and specific set of HUD rules.

HUD’s Strict 25% Rule: The Bright Line for Business Use

HUD allows a HECM on a property with some “non-residential use,” but only if that business activity is clearly secondary to the property’s main purpose as a home.⁴⁹ The property must remain “primarily residential” in its look, feel, and legal zoning status.⁵⁰ This allows for things like a home office for a consultant or a small, quiet business run out of a garage, but it strictly forbids anything that makes the property feel more like a business than a home.

To make this clear, HUD created the “25% Rule” for HECMs. This rule states that a property with a business can be eligible, but only if two conditions are met:

The space used for the business does not take up more than 25% of the property’s total floor area.⁵⁰
The business activity does not change the home’s residential character and isn’t disruptive to the neighborhood (e.g., no heavy customer traffic, loud noises, or hazardous materials).⁴⁹

The type of business is just as important as the square footage. A quiet accountant using a spare bedroom as an office is likely fine.⁴⁹ A mail-order business run from a garage has also been approved.⁵¹

However, some businesses are almost always rejected, even if they fit in the 25% space limit. These include:

Bed and Breakfasts: This changes the property’s use from a private home to a commercial hotel.⁵⁰
Beauty Salons or Barber Shops: These often require special entrances, signs, and customer parking, which makes the property feel commercial.⁵⁰
Animal Kennels or Boarding: These businesses create noise and odors, and the space required for the animals can easily exceed the 25% limit.⁴⁹
Farms or Agricultural Land: HUD rules specifically forbid insuring loans on properties used for farming or growing crops for sale.⁴⁹

Why the FHA’s 49% Rule for Regular Mortgages Doesn’t Apply to You

This is a major point of confusion. For a standard FHA-insured forward mortgage (a regular home loan, not a reverse mortgage), the rules are more lenient. They allow non-residential use of up to 49% of the property’s floor space.⁵² Many mixed-use property owners see this rule and mistakenly think it applies to HECMs. It does not.

The reason for the stricter 25% limit on HECMs is all about managing risk for the FHA insurance fund. With a regular mortgage, your loan balance goes down every month. With a reverse mortgage, the loan balance goes up every month.¹⁷ The biggest financial risk is at the end of the loan, when the borrower passes away and the property must be sold to repay the large, accumulated debt.²¹

At that point, the FHA needs to be sure the property can be easily sold as a residential home to a typical homebuyer. A property that is 49% commercial is a strange hybrid asset that is harder to sell and value. To avoid this “back-end risk,” HUD enforces the tougher 25% limit on HECMs to ensure the property always remains, first and foremost, a marketable home.

| Guideline | HECM (Reverse Mortgage) | Standard FHA Loan (Forward Mortgage) |

|—|—|

| Max Business Use | The business space cannot exceed 25% of the total floor area. | The business space can be up to 49% of the total floor area. |

| Core Principle | The property must be “primarily residential,” and the business use must be secondary. | The property must be “primarily residential,” and the business use must be secondary. |

| Reason for the Limit | The stricter limit reduces risk for the FHA insurance fund, ensuring the property is easy to sell as a residence at the end of the loan when the debt is highest. | The more lenient limit is acceptable because the loan balance is decreasing over time, reducing the lender’s and FHA’s risk. |

| Key Hurdle | The lender’s underwriter has the final say on what counts as “total floor area.” You should talk to the lender before applying. | The property must still follow local zoning laws, and the appraiser’s opinion on the property’s residential character is critical. |

Your Property Has Equity, But a Reverse Mortgage Is Off the Table. Now What?

Just because a reverse mortgage is not an option doesn’t mean the equity in your commercial property is locked away. The world of commercial finance has several powerful and well-established tools designed specifically for business owners and investors to access that value. These alternatives are built for business assets and can be tailored to your specific goals.

Option 1: The Flexible Lifeline – Commercial Equity Lines of Credit (CELOCs)

Think of a Commercial Equity Line of Credit (CELOC) as a HELOC for your business property.⁴⁰ It is a revolving line of credit secured by your commercial building, such as an office, warehouse, or retail space.⁵³ A lender approves you for a maximum credit limit, and you can draw funds from it, repay them, and draw them again as needed during a “draw period,” which often lasts 5 to 10 years.⁵⁵

This structure is perfect for business owners who need ongoing, flexible access to cash for unpredictable expenses. Common uses include managing seasonal cash flow gaps, funding property renovations in stages, or purchasing inventory and equipment without taking out a large, single loan.²⁶

Pros	Cons
High Flexibility: You borrow only what you need, exactly when you need it, giving you total control.	Variable Interest Rates: Most CELOCs have variable rates tied to the market, meaning your payments can unexpectedly go up.
Cost-Efficient: You only pay interest on the money you’ve actually drawn, not the total credit limit.	Foreclosure Risk: Your commercial property is the collateral. If you can’t make payments, the lender can foreclose on your business’s property.
Reusable Capital: As you repay the principal, your available credit is restored, creating a continuous source of funds.	Multiple Fees: CELOCs often come with appraisal fees, origination fees, and sometimes annual maintenance fees that add to the cost.

Option 2: The Big Move – Commercial Cash-Out Refinancing

A commercial mortgage refinance is when you replace your current property loan with a new one.⁶⁵ A cash-out refinance specifically involves getting a new mortgage that is larger than what you owe on the old one. At closing, the new loan pays off your old mortgage, and the remaining difference is given to you as a single, tax-free lump sum of cash.⁶⁹

This strategy is best for property owners who need a large, one-time amount of money for a specific purpose and are comfortable with increasing the total debt on their property. The amount of cash you can pull out depends on the property’s current value and the lender’s loan-to-value (LTV) limit, which is often around 75%.⁷² This makes it a powerful tool for big strategic moves.

Common uses include providing the down payment to acquire another investment property, funding a major redevelopment project, or consolidating other higher-interest business debts.⁶⁵

Pros	Cons
Access to Large Capital: This is one of the best ways to unlock a significant amount of your property’s equity in a single transaction.	Increased Debt Load: Your new loan is larger, which means your property carries more debt and your monthly mortgage payment will likely be higher.
Potentially Lower Fixed Rates: If market rates have dropped, you can lock in a lower fixed interest rate for the entire new loan, saving money long-term.	High Closing Costs: A refinance is a new loan, so it comes with significant closing costs (2-5% of the loan amount) for things like appraisals, origination, and title insurance.
Better Loan Terms: You may be able to get a longer repayment period (amortization), which can help lower your monthly payment even with a bigger loan.	Prepayment Penalties: Your old loan may have a prepayment penalty, which is a large fee for paying it off early. This can eat into the cash you receive.

Option 3: The Full Reset – Sale-Leaseback Transactions

A sale-leaseback is a completely different approach. In this transaction, a company sells its property to an investor and, at the exact same time, signs a long-term lease to continue operating out of that same property.⁴ The business owner goes from being an owner to being a tenant. This strategy isn’t about borrowing against equity; it’s about converting 100% of the property’s value into cash.¹⁵

The buyer is usually a large investor, like a Real Estate Investment Trust (REIT), looking for a stable, long-term tenant.⁷⁴ The lease is often a “triple net” (NNN) lease, meaning the tenant (the former owner) continues to pay for all property operating expenses like taxes, insurance, and maintenance.⁷⁶

This makes a sale-leaseback a powerful strategic move for business owners who believe the capital tied up in their real estate could generate a higher return if invested back into their core business operations.⁵⁷ It is also commonly used to fund the acquisition of another company or to improve a company’s balance sheet by removing real estate assets and mortgage debt.⁵⁷

Pros	Cons
Maximum Capital: Unlocks 100% of the property’s equity, far more than the 70-80% available through debt financing.	You No Longer Own the Property: You give up ownership and any future appreciation in the property’s value.
Improved Financials: Removes a large, illiquid asset and its associated mortgage from the balance sheet, which can improve key financial ratios.	Loss of Control: As a tenant, you lose control. Any future changes to the property require the landlord’s approval.
Tax Advantages: Lease payments are typically fully deductible as a business expense, which can offer a better tax benefit than just deducting mortgage interest.	Long-Term Lease Obligation: You are locked into making rent payments for a very long time (10-20+ years), and you face the risk of rent increases or non-renewal at the end of the lease.

Real-World Scenarios: Which Path Is Right for You?

Choosing between these powerful options depends entirely on your specific goals. A tool that is perfect for one business owner could be a disaster for another. The right choice becomes clearer when you look at common real-world situations.

Scenario 1: The Restaurant Owner Needing Flexibility

Maria owns a successful restaurant. Her business is seasonal, with cash flow tightening in the winter months, and she wants to do a minor patio renovation before summer. She has significant equity in her building but doesn’t need a huge lump sum of cash.

Maria’s Action	The Consequence
Maria takes out a Commercial Equity Line of Credit (CELOC) for $150,000.	She draws $20,000 to cover payroll in February and another $50,000 in April to build the new patio. She only pays interest on the $70,000 she used, preserving cash flow. However, her interest rate is variable, so she must monitor it closely.

Scenario 2: The Real Estate Investor Focused on Growth

David owns a fully-leased, 10-unit apartment building that has appreciated significantly in value over the past five years. He identifies a similar 12-unit building for sale in a neighboring town and wants to acquire it to expand his portfolio. He needs a substantial down payment to secure the new loan.

David’s Action	The Consequence
David does a Cash-Out Refinance on his 10-unit building, pulling out $300,000 in equity.	He uses the $300,000 as the down payment to purchase the new 12-unit building, successfully growing his portfolio. His mortgage payment on the first building is now higher, but the rental income from the new building is projected to more than cover the increase.

Scenario 3: The Manufacturing Founder Planning an Exit

Robert is 65 and founded a successful manufacturing company 30 years ago. He owns the factory and warehouse outright. He plans to sell the operating business to his management team in the next two years and wants to maximize the cash he takes out for his retirement.

Robert’s Action	The Consequence
Robert executes a Sale-Leaseback of the factory and warehouse to a REIT for $5 million.	He immediately receives $5 million in cash, which he can use for his retirement. The business signs a 15-year triple-net lease, providing stability for the new owners. Robert forgoes any future appreciation on the real estate, but he has maximized his immediate, liquid return.

Top 5 Mistakes to Avoid When Accessing Commercial Equity

Tapping into your property’s equity can be a game-changer, but it’s also filled with potential pitfalls. A single misstep can cost you tens of thousands of dollars or even put your entire property at risk. Here are the most common and costly mistakes business owners make.

Ignoring Prepayment Penalties. Many commercial mortgages have a prepayment penalty clause, which is a substantial fee you must pay if you pay off the loan before its term is over. A cash-out refinance involves paying off your old loan, which can trigger this penalty. The Consequence: The penalty, which can be tens or even hundreds of thousands of dollars, is deducted from your cash-out proceeds, drastically reducing the amount of money you actually receive.⁶⁹
Underestimating Closing Costs and Fees. Refinancing a commercial loan or opening a CELOC isn’t free. You will face a long list of fees, including appraisal fees, loan origination fees, title insurance, and legal fees. These costs can add up to 2-5% of the total loan amount.⁶⁹ The Consequence: You walk away from the closing table with significantly less cash than you planned for, which could jeopardize the project or acquisition you intended to fund.
Failing to Shop Around for Lenders. Not all lenders are created equal. Interest rates, fees, and loan terms can vary dramatically from one bank or private lender to the next.⁹⁸ Accepting the first offer you receive is a common mistake driven by a desire to get the process over with quickly. The Consequence: You could get locked into a loan with a higher interest rate or less favorable terms, costing your business thousands of dollars in extra interest payments over the life of the loan.
Using a Short-Term Solution for a Long-Term Need. Bridge loans and some lines of credit are designed for short-term needs and often come with a “balloon payment,” where the entire loan balance is due at the end of a short term (e.g., 1-3 years).⁹³ Using this type of financing for a long-term project is a recipe for disaster. The Consequence: You are forced to find a way to pay off a massive loan balance in a short period. If you can’t secure new financing, you could be forced to sell the property or face foreclosure.
Forgetting the Impact on Your Balance Sheet and Covenants. Taking on new debt (a refinance or CELOC) or converting an asset to a lease obligation (a sale-leaseback) changes your company’s financial statements.⁷⁵ Many existing business loans have covenants—rules you must follow—regarding your debt-to-equity ratio or other financial metrics. The Consequence: The new financing arrangement could cause you to violate a covenant on another loan, triggering a default on that loan and creating a major financial crisis for your business.

Frequently Asked Questions (FAQs)

Can I get a reverse mortgage on a duplex, triplex, or four-plex?

Yes, you can get a HECM on a property with two to four units. However, you must live in one of the units as your primary residence for the property to be eligible.99

What if I start a home-based business after I get a reverse mortgage?

No, this could cause a default. The same HUD rules apply for the entire life of the loan. If your new business takes up more than 25% of the floor space, it could trigger a default, making the entire loan balance due immediately.41

Are there any non-FHA or ‘jumbo’ reverse mortgages for commercial properties?

No. Proprietary or “jumbo” reverse mortgages are private loans for high-value homes, not commercial properties. They still require the property to be the borrower’s principal residence and are not a loophole for business assets.15

Is a farm or agricultural property eligible for a reverse mortgage?

No. HUD and FHA guidelines explicitly prohibit insuring loans on properties with any agricultural use, such as growing crops or raising livestock for sale. These properties are considered ineligible regardless of the size of the operation.49

If my mixed-use property is denied for a HECM, can I still get a standard FHA loan?

Yes, it’s possible. Standard FHA forward mortgages have a more lenient 49% limit for non-residential use. A property denied for a HECM due to its business use might still qualify for a regular FHA home loan.