Reverse mortgages can provide cash for seniors whose net worth is mostly tied up in the value of their home. A reverse mortgage is a loan for homeowners who are age 62 or older and have considerable home equity. It allows these seniors to borrow money against the value of their home and receive funds as a lump sum, a fixed monthly payment, or a line of credit. The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home.
To qualify for a reverse mortgage, you must meet certain requirements. One of these is that the property that you’ve taken out the loan against must be your principal residence. If you plan to live in your home until you pass away, that might not seem like a hard requirement to meet. However, you should be aware that being away from your property, even for a hospital stay, can trigger your lender to foreclose on your loan. In some cases, this can lead to you losing your home.
It’s therefore important to understand the residency rules that apply to reverse mortgages before you agree to one. In this guide, we’ll take you through these rules.
- To have a reverse mortgage on a property, it must be your principal residence, meaning that you live there for most of the year.
- Your reverse mortgage will mature if you’re away from the property for more than six months for a nonmedical reason or more than 12 consecutive months in a medical facility.
- Violating the residency requirement can lead to the borrower being required to pay back the remaining part of the loan.
- If a spouse is on the reverse mortgage as a co-borrower or an eligible non-borrower, they may not be forced to leave if the occupancy requirements are violated.
There are three types of reverse mortgages. The most common is the home equity conversion mortgage (HECM). The mortgage amount is based on the lesser of 1) the appraised value, 2) the Federal Housing Administration (FHA) HECM limit of $970,800, and 3) the sales price (only applicable to HECM for purchase). If you need to borrow more, you can look into a jumbo reverse mortgage, also called a proprietary reverse mortgage.
Residency Rules for Reverse Mortgages
The rules for reverse mortgages say that the property on which you have the reverse mortgage must be your principal residence, meaning that it must be where you spend the majority of the year. You can have only one principal residence at a time.
In addition to this general rule, there are other rules that determine how long you can be away from your home and still maintain a reverse mortgage on it. Here is a summary of these rules:
- If you are away for more than two months but less than six months, you should notify your lender so that they know that you continue to live at your principal residence. Doing this can help you to avoid issues with reverse mortgage residency rules.
- If you are away from a property for more than six months for nonmedical reasons, you cannot claim it as your principal residence. This will trigger the reverse mortgage to become due, which can mean that the loan must be repaid or satisfied through selling the property or deed-in-lieu of foreclosure. Anyone living in the home will have to move out unless they can repay the loan.
- If you are away for more than 12 consecutive months in a healthcare facility such as a hospital, rehabilitation center, nursing home, or assisted living facility, and if there is no co-borrower living in your home, then you also will be regarded as having left your principal residence. As a result, the reverse mortgage loan would be due, meaning that it must be repaid or satisfied through selling the property or deed-in-lieu of foreclosure. Anyone living there will need to move out unless they can repay the loan or qualify as an eligible non-borrowing spouse.
The rules are slightly different if a co-borrower is living in the home. Many couples add both spouses to the reverse mortgage documents as co-borrowers, and doing this can help you to avoid problems. As long as one co-borrower continues to live in your principal residence, they can continue to do so (and receive loan payments), even if you leave the property permanently.
If you live with your spouse (or other family members above the age of 62), adding them as co-borrowers to the reverse mortgage may prevent a forced sale if one of you has to move to a healthcare facility for more than 12 months.
Issues with the Residency Rules for Reverse Mortgages
The residency rules for reverse mortgages, as set out above, can give rise to some difficulties and issues.
For example, if a couple lives in a home together but only one person is listed on the reverse mortgage documents, and if this person must then go to the hospital (or nursing home) for more than 12 months, then the loan will become due. This can mean that their spouse has to leave the house and sell it to satisfy the outstanding debt. If your spouse has been added to the reverse mortgage when it’s taken out, it may prevent the spouse from being forced out. However, the taxes and insurance still must be paid during the borrower’s absence and the home must be maintained.
Another common issue stems from the requirement to prove that you live in your principal residence for most of the year. Most lenders will require you to certify each year that your home is your principal residence. Usually, this is done through a postcard or other notice sent by mail at the same time each year. If your spouse is designated as an eligible non-borrowing spouse in the loan documents, you will also need to certify that you are still married and that your spouse lives in the home as their principal residence.
It is important that you sign and return your annual occupancy certification immediately. If you do not, then your lender may think that you’ve moved away and even start foreclosure proceedings on your home.
Does a Reverse Mortgage Have to Be on a Primary Residence?
Yes. Home equity conversion mortgage (HECM) loans can be made only for primary residences. Reverse mortgages require the borrower to use the property as the primary residence for the lifetime of the loan.
How Long Can I Be Away From Home With a Reverse Mortgage?
The rules state that you must live at a property for the majority of the year for it to qualify as your principal residence. This means that you can’t be away for more than six months at a time for nonmedical reasons.
Can I Move From a House With a Reverse Mortgage?
If you move from a house with a reverse mortgage, then that reverse mortgage will become due. This means that you must repay the balance of your loan, either through selling your house or raising funds in some other way.
The Bottom Line
Reverse mortgages come with residency rules. To have a reverse mortgage on a property, it must be your principal residence, meaning that you live there for the majority of the year.
If you are away from your property for more than six months for a nonmedical reason, or for more than 12 consecutive months in a medical facility, then your reverse mortgage will mature. As a result, the remaining part of the loan must be repaid. If your spouse is added to the reverse mortgage, as either a co-borrower or an eligible non-borrowing spouse, they may be able to remain in the home if the primary borrower has violated the residency requirements. However, it’s important to contact an HECM counselor to review your financial situation and determine if a reverse mortgage is right for you.