Reverse Mortgages for Two-Family Houses

A reverse mortgage is a special type of lending arrangement for homeowners age 62 or older. Homeowners can draw from their home equity, without having to make any monthly payments as they would with a traditional home equity loan or a home equity line of credit. A reverse mortgage may be an option if you own a single-family home or a multifamily home when certain requirements are met.

Key Takeaways

  • A reverse mortgage allows eligible homeowners age 62 or older to tap into their home equity.
  • A homeowner could get a reverse mortgage for a two-family home if they use the home as their primary residence.
  • There are no monthly payments required for a reverse mortgage, though borrowers must meet age and credit requirements.
  • Reverse mortgages must be repaid with interest when the borrower no longer lives in the home.

How a Reverse Mortgage Works

A reverse mortgage is not a traditional loan, per se. When a borrower gets a reverse mortgage, they convert the equity in their home into regular cash flow. They receive monthly payments, which can be used to fund living expenses, healthcare, or other costs in retirement. The homeowner must meet certain requirements, including:

  • Using the home as their primary residence
  • Paying property taxes and insurance
  • Maintaining the home

During the borrower’s lifetime, they pay nothing back against the equity that they’ve borrowed as long as they’re living in the home. Interest and fees accumulate on the balance. Once the borrower no longer lives in the home—for example, because they’ve sold it, moved to a nursing facility, or passed away—the borrowed amount is repayable in full.

This differs from a regular home equity loan or home equity line of credit (HELOC). With those types of loans, the home serves as collateral. Borrowers can take out equity up to the maximum amount allowed by the lender. The money is repaid over time, with interest, and there are no age restrictions. If the borrower fails to repay a home equity loan or a HELOC, the lender can initiate foreclosure proceedings to take ownership of the property.

Note

In a divorce settlement, one spouse may take out a reverse mortgage to buy out the other spouse’s interest in the home so that they can retain ownership of the property.

Reverse Mortgage and Two-Family Houses

Certain requirements must be met for someone to take out a reverse mortgage. Generally, if you’re getting a Federal Housing Administration (FHA) reverse mortgage, also known as a home equity conversion mortgage (HECM), you must:

  • Be age 62 or older
  • Own the property outright or have paid down most of the mortgage
  • Live in the property as a principal residence
  • Not be delinquent on federal debt, including tax debt and student loans
  • Have resources to pay property taxes, insurance, and maintenance
  • Attend a U.S. Department of Housing and Urban Development (HUD)-approved reverse mortgage information session

There are also guidelines for the types of property that are eligible for a reverse mortgage. Allowed property types include single-family homes and two- to four-unit homes.

This means that it’s possible to take out a reverse mortgage if you own a two-family home, assuming that all of the other conditions are met. For example, you might be a widow living with your adult daughter, her spouse, and their children. As long as you own the home outright or nearly so and use it as your principal residence, you could qualify for a reverse mortgage.

Tip

You could also get a reverse mortgage if you own a duplex, triplex, or quadruplex home as long as you live in one of the units.

Who Repays a Reverse Mortgage for a Two-Family Home?

During your lifetime, you typically pay nothing toward a reverse mortgage as long as you live in the home. However, the money that you borrowed against your equity must be repaid eventually. If you’re living in a two-family house, who pays can depend on who else’s name is on the reverse mortgage and who’s living in the home at the time.

If you’re co-borrowing an HECM with a spouse, an adult child, or someone else, that person can remain in the home—even if you move out or pass away—without having to pay anything toward the loan. Your spouse also may be able to stay in the home without having to pay off the loan balance if you pass away or move to nursing care, even if they’re not listed as a co-borrower. But they have to continue living in the home as their principal residence.

Anyone who is not a co-borrower on the reverse mortgage—such as a child, a dependent, another relative, or a spouse who doesn’t qualify as an eligible non-borrowing spouse—will have to pay off the loan balance if they want to stay in the home. If they’re unable to come up with the money to pay off the reverse mortgage, then they’ll have to sell the home.

Important

If the loan balance is more than what the home is worth, anyone who’s responsible for paying off the reverse mortgage does not have to pay the excess.

What is a reverse mortgage?

A reverse mortgage—or a home equity conversion mortgage (HECM), if it’s a type of reverse mortgage that is insured by the Federal Housing Administration (FHA)—allows eligible homeowners age 62 or older to draw income from their equity in their homes. This type of loan must be repaid once the borrower no longer lives in the home.

Can I get a reverse mortgage if someone else lives with me?

If you’re married or live with an adult child, a dependent, or another relative, that won’t affect your ability to get a reverse mortgage. You also could get a reverse mortgage if you live in a two-family duplex as long as you live in one of the units as your principal residence.

When must a reverse mortgage be repaid?

A reverse mortgage doesn’t require monthly payments during the borrower’s lifetime, unless they no longer live in the home. If they move to a different home, move to a full-time nursing care facility, or pass away, then the loan becomes repayable in full.

Who pays off a reverse mortgage?

If other people, such as a spouse or an adult child, live in the home at the time that a reverse mortgage becomes due, then they are responsible for repaying it unless they’re listed as a co-borrower on the loan. If the borrower passes away and there are no other co-borrowers or residents of the home, then the borrower’s heirs would be responsible for paying off the balance.

The Bottom Line

Reverse mortgages can provide a supplemental stream of income in retirement for homeowners who have accumulated a sizable amount of equity. If you’re living in a two-family home, it’s important to understand when you can and can’t get a reverse mortgage, as well as who is responsible for repaying it. It’s also helpful to compare different reverse mortgage options to find the one that has the most favorable terms for your situation.

Article Sources

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  1. Consumer Financial Protection Bureau. “What Is a Reverse Mortgage?

  2. Consumer Financial Protection Bureau. “Can My Partner, Family, or Dependents Live in My Home If I Have a Reverse Mortgage?

  3. Consumer Financial Protection Bureau. “What Is a Home Equity Loan?

  4. U.S. Department of Housing and Urban Development. “Part 206 — Home Equity Conversion Mortgage Insurance,” Page 66.

  5. U.S. Department of Housing and Urban Development. “4235.1 REV-1: Chapter 4. Mortgage Credit Analysis,” Page 3.

  6. U.S. Department of Housing and Urban Development. “How the HECM Program Works.”

  7. Consumer Financial Protection Bureau. “What Happens If My Reverse Mortgage Loan Balance Grows Larger Than the Value of My Home?

  8. Consumer Financial Protection Bureau. “You Have a Reverse Mortgage: Know Your Rights and Responsibilities,” Pages 3–4 (Pages 5–6 of PDF).

  9. Consumer Financial Protection Bureau. “What Happens If I Have a Reverse Mortgage and I Have to Move Out of My Home, Such as Moving Into a Nursing Home or to Live with Family?

  10. Consumer Financial Protection Bureau. “If I Have a Reverse Mortgage Loan, Will My Children or Heirs Be Able to Keep My Home After I Die?