Reverse mortgages can provide a supplemental income stream for homeowners. This type of loan allows eligible homeowners to tap into their equity and receive monthly payments or a lump sum, without having to pay anything back to the lender right away. If you live with someone, either as a roommate or a romantic partner, it's important to understand how co-borrowing for a reverse mortgage works and what rights and responsibilities it conveys.
- Reverse mortgages are designed to allow homeowners to convert home equity into income.
- Married and unmarried couples can take out reverse mortgages together, but doing so can have financial implications if one person moves out or passes away.
- Unmarried partners and roommates should be aware of the possible financial responsibilities as well as their rights to the property should the other partner or roommate leave the home.
- Defaulting on a reverse mortgage can result in foreclosure.
How a Reverse Mortgage Works
A reverse mortgage is a special type of loan that's designed for one purpose: to allow eligible homeowners to withdraw equity from their homes. This might sound like a home equity loan but it's not the same thing. With a home equity loan, the borrower receives a lump sum of money that they must then repay to the lender with interest and fees added in. A home equity loan is effectively a type of second mortgage that's secured by the property itself.
With a reverse mortgage, the homeowner can receive a lump sum or monthly installment payments against their equity from the reverse mortgage company. They're not responsible for making monthly payments against the balance, though interest and fees may accrue. Once the homeowner is no longer using the home as their primary residence, either because they've sold it, moved to a nursing home, or have passed away, the full balance becomes payable.
A reverse mortgage that is subject to Federal Housing Administration (FHA) rules is called a home equity conversion mortgage (HECM).
Can Unmarried Couples Have a Reverse Mortgage?
Reverse mortgages can be a popular way for retired couples to create an additional stream of income, assuming they meet eligibility requirements. Being married and listed as co-borrowers conveys certain rights and protections should one spouse leave the home for any reason. Specifically, if one co-borrower moves out or dies, the other co-borrower can remain in the home without having to pay anything toward the reverse mortgage balance.
This same protection is extended to unmarried couples if both of them are listed as co-borrowers on the reverse mortgage. This means that whether you've been with your partner for 20 years or two months, if they move out or pass away you can preserve your right to remain in the home as long as your name is on the reverse mortgage documentation.
Once you leave the home and no longer use it as a principal residence, any remaining balance on the reverse mortgage would be due. So if you were to move, you would be responsible for the balance as the co-borrower. But if you were to pass away, the person (or persons) who inherits the home would be responsible for settling the balance in order to retain ownership of the property.
An unmarried reverse mortgage co-borrower would need to be added to the home's title in order to have ownership rights to the property.
Can Roommates Have a Reverse Mortgage?
Roommates can take out a reverse mortgage together as co-borrowers as long as they meet the eligibility requirements. For instance, for home equity conversion mortgages, you must:
- Be age 62 or older
- Own the property outright or have paid down the majority of the mortgage because the general rule is that they must have at least 50% equity in the home
- Have financial resources to pay for homeowners' insurance, property taxes, maintenance, and upkeep
- Not be delinquent on any federal debt, including student loans or taxes
- Live in the home and use it as a principal residence
- Attend HUD-approved consumer counseling
Co-borrowers to a reverse mortgage also need to meet credit score and income requirements as established by the reverse mortgage company. If both roommates are listed as co-borrowers, then each has the right to remain in the home if the other moves out or passes away.
You may want to consult an attorney about the legalities of taking out a reverse mortgage with a roommate.
If Your Partner or Roommate Isn't a Co-Borrower
What happens if you take out a reverse mortgage on your home and you have a partner or roommate who lives with you, but isn't listed as a co-borrower? This can create an issue for them if you pass away since the roommate or partner would first need to establish their legal right to remain in the home.
If a roommate or partner is not listed on the title or deed to the home and you have no written agreement specifying that they have ownership rights, they may be required to vacate the property. Even if they are able to prove they have a right to be in the home, that doesn't settle the issue of what happens to the reverse mortgage.
Generally, the balance would still need to be paid and the responsibility for that would fall to the original borrower's heirs. Their options for repaying the balance might include:
- Selling the home and using the proceeds to pay off the debt
- Refinancing the reverse mortgage into a conventional loan or government loan (FHA, VA, or USDA loan)
- Using other assets from the estate or their personal reserves
If you own a home and are considering a reverse mortgage and you also have a roommate or partner living in the property, you may want to talk over the options with your children beforehand. This can also give you an opportunity to express your wishes regarding the roommate or partner's ability to stay in the home should something happen to you.
The Bottom Line
Reverse mortgages can help to create additional income for retirement, but they aren't necessarily right for everyone. Weighing the pros and cons can help you to decide if a reverse mortgage might be appropriate for your situation. You can also research the best reverse mortgage companies to see what types of borrowing options are available.
Can 2 People Be on a Reverse Mortgage?
Two people can be listed on a reverse mortgage as co-borrowers if they meet eligibility requirements. A spouse who is ineligible because of age can also be listed as an eligible non-borrowing spouse, which may convey the right to remain in the home if the primary borrower moves out or passes away.
Can You Add Someone to a Reverse Mortgage?
You cannot add someone to an existing reverse mortgage that you've already taken out. If you'd like to put someone on a reverse mortgage that you haven't applied for yet, you can apply together as co-borrowers.
Does a Spouse Have to Be on a Reverse Mortgage?
A spouse does not have to be listed on a reverse mortgage. But adding your spouse as a co-borrower or eligible non-borrowing spouse can provide them with certain rights and protections if something were to happen to you.