Reverse mortgages can be a good way for seniors to release some of the equity in their home. It allows these seniors to borrow money against the value of their home and receive funds as a lump sum, fixed monthly payment, or 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, a homeowner must be age 62 or older, have considerable equity in their home, and use it as their primary residence. This last requirement means that you can only have one reverse mortgage at a time, and that if you want to rent out a portion of your home, you must still be living there. Otherwise, your lender can end the reverse mortgage and demand payment of your loan.
In this article, we’ll look at how you can rent out a property with a reverse mortgage attached to it.
There are three types of reverse mortgages. The most common is the home equity conversion mortgage (HECM). The HECM represents almost all of the reverse mortgages that lenders offer on home values below $1,089,300 so that’s the type that this article will discuss. If your home is worth more, however, you can look into a jumbo reverse mortgage, also called a proprietary reverse mortgage.
- A reverse mortgage can only be taken out on your primary residence.
- A primary residence is the home where you spend most of the year.
- You can rent out a portion of your home and keep your reverse mortgage. Check with your reverse mortgage provider if you are considering renting out a room or unit.
- If the reverse mortgage holder passes away or moves out of the property, you (or your heirs) may have to sell it to repay your loan.
Understanding Reverse Mortgage Residency Rules
One of the requirements of taking out a reverse mortgage loan is that it must be associated with your primary residence. The exact interpretation of this requirement is up to your lender, but the Consumer Financial Protection Bureau (CFPB) recommends that you do not spend more than six months away from your property at any one time (or 12 consecutive months if you need to leave for medical reasons).
There are a number of consequences of this rule. One is that you can’t have more than one reverse mortgage at once. Another is that you can’t leave your property and rent it out. Equally, you can’t buy a property to rent and then take out a reverse mortgage on it. In other words, you have to live at the property on which you have a reverse mortgage.
That said, the residency requirement doesn’t stop you from renting out a room in your house while you still live there. Different lenders have different rules about when and how you can do this, so you should check with your reverse mortgage lender before you decide to rent out a portion of your home.
Make sure you understand the residency rules that relate to your reverse mortgage. If you leave the property for more than six months, even for a vacation, your lender can terminate your loan. This might mean that you have to sell your house to pay it back.
Acceptable Rental Situations
Each lender has different rules when it comes to what counts as an acceptable rental situation. Because of this, you should check with your lender before you rent out any part of your home—even to family members—to make sure that you won’t fall afoul of their rules.
However, there are a couple of general rules that are fairly consistent across lenders. One is that any rental should be long term. If you rent out a room in your house as an Airbnb, your lender might claim that you are using the property as a business and terminate your reverse mortgage.
Similarly, it’s possible to get a reverse mortgage on a multifamily property that contains up to four units. If you own such a property, you are also entitled to rent out the units as long as you occupy one of the units as your primary residence. However, if you ever move, lease, or sell your unit, you would be violating the primary residency requirement, making your loan due and payable.
Can I rent out a house with a reverse mortgage?
You can rent out a part of your house, but you must still live there. That’s because you can only have a reverse mortgage on your primary residence—the place where you live for most of the year.
How long can I be away from home with a reverse mortgage?
The exact length of time that you can be away from home before a property no longer counts as your primary residence is up to your lender. However, the Consumer Financial Protection Bureau (CFPB) recommends that you are not away for more than six months (or 12 consecutive months if you have a medical reason).
How many people can live in a house with a reverse mortgage?
As many as you like. While you must live at the property on which you have a reverse mortgage, there are no rules that prevent family members from moving in with you—and they can even pay you rent. Just be aware that if you, as the reverse mortgage holder, pass away or move out of the property, then the loan will become due. If you have to move to a hospital for long-term care, this might mean that you have to sell your house, even if your family members still live there.
The Bottom Line
The property on which you have a reverse mortgage must be your primary residence. This means that you must live there for most of the year. You can’t get a reverse mortgage for a property where you don’t live.
That said, it is possible to rent out a portion of your home and keep your reverse mortgage. Each lender has different rules about this, so check with your reverse mortgage provider if you are considering renting out a room or unit. And keep in mind that if the reverse mortgage holder passes away or moves out of the property, you may have to sell it to pay back your loan.