You need to be aware of your rights and limitations if your spouse took out a reverse mortgage but you aren’t included on the loan or if you know someone who is. It might be difficult to understand reverse mortgage regulations for non-borrowing spouses, but they govern whether or not the spouse can continue to reside in the house and collect reverse mortgage profits in the event that the borrowing spouse passes away or vacates.
- It is important to understand if you qualify for a reverse mortgage if your spouse is a borrower and you are not.
- Non-borrowing spouses who are ineligible run the danger of losing their right to dwell in the house secured by their spouse’s reverse mortgage.
- Non-borrowing spouses who are both eligible and disqualified run the risk of losing access to reverse mortgage earnings.
- It could still be possible for you to take steps to protect yourself if your husband is still alive and living with you.
The Home Equity Conversion Mortgage (HECM), the most popular reverse mortgage product and the only one insured by the Federal Housing Administration, is subject to the regulations outlined in this article (FHA).These safeguards may not be applicable if your reverse mortgage is of a different sort. If you have questions, review your mortgage contract and ask for assistance from a real estate lawyer, elder law lawyer, or a HECM housing counselor certified by the U.S. Department of Housing and Urban Development (HUD).
Why Some Spouses Aren’t Co-Borrowers on Reverse Mortgages
An FHA reverse mortgage requires a homeowner to be at least 62 years old. The elder spouse may be qualified for a reverse mortgage but their younger partner is not when one spouse is older than the other. The elder spouse will be the only borrower if the pair decides to apply for a loan. The age of the partner who is younger will determine how much may be borrowed.
Both partners must sign the loan documents in person at closing. The documentation will specify whether the non-borrowing spouse is eligible or not. If the borrowing spouse passes away before the non-borrowing spouse or moves permanently into a residential healthcare facility, such classification will affect the non-borrowing spouse’s ability to continue residing in the property. In general, qualified non-borrowing spouses may do so; ineligible spouses may not.
Problems may occur when one spouse is not listed as a borrower on the reverse mortgage, is not on the title to the property, or in both cases.
You must be wed to the borrower from the moment the reverse mortgage closes until the borrower passes away or separates from you in order to qualify as the non-borrowing spouse. The property must be and continue to be your primary residence, and you must be included in the loan documentation as an eligible non-borrowing spouse.
How Reverse Mortgages Affect Spouses
The reverse mortgage enters a deferral phase when the borrower spouse passes away or vacates the property for more than 12 months in a row—consider relocating into a facility for residential care, such a nursing home or assisted living. Deferral implies the lender won’t announce that the eligible non-borrowing spouse’s debt is about to mature. Time to pay it back or give the home to us. The lender will respond, “Hey, you can’t have any more money, but you can still live in the home until you die or move out,” as opposed to the previous statement. That’s the general idea, but there are other requirements as well, which we’ll go through below.
When the loan closes, a spouse who is not borrowing may be eligible, but that spouse may subsequently lose their eligibility due to a divorce and forfeit their entitlement to the deferral period. Additionally, if a borrower marries a new spouse after taking out the loan, the time does not apply to them. To add the new spouse as a co-borrower or an eligible non-borrowing spouse, the newlyweds would need to refinance the reverse mortgage.
Old Rules vs. New Rules
There was no delay time for qualified non-borrowing spouses under earlier reverse mortgage regulations. Older regulations likewise did not base loan limitations on the age of the younger spouse.
Couples thus had an incentive to make the senior spouse the lone borrower so they could utilize more of the equity in their property as collateral. Sadly, this often led to a non-borrowing spouse losing their home when their partner passed away or into long-term care. Legal disputes and negative news followed.
Although consumers may believe that the new regulations don’t go far enough, things are better today. The U.S. Department of Housing and Urban Development (HUD) nevertheless thinks that the regulations make sense in terms of maintaining the reverse mortgage program’s financial viability while additionally enabling senior homeowners to obtain reverse mortgages with some non-borrowing spouse protections.
Losing the House
An ineligible non-borrowing spouse will lose their house when their spouse passes away or separates from them under current regulations, but in many circumstances, they won’t need or want to live there in the first place. One exemption is if you were married to a person who had a reverse mortgage on their house and then moved in with them permanently as an ineligible non-borrowing spouse.
You two need to take action right away in this situation. You may refinance and put your name on the loan, make plans to put money away to pay off the debt when it’s due, or make arrangements for where you’ll live if you’re unable to make your payments and have to (or want to) move out. You cannot just take on your spouse’s debt.
Getting More Money
If your spouse passes away, you won’t be able to access any additional money from the reverse mortgage even if you’re an eligible non-borrowing spouse. You won’t be eligible for any of the loan’s monthly payments that your spouse was getting, and you won’t have access to any of the reverse mortgage lines of credit that they may have had.
That may seem unjust, but it isn’t for the following reason: You aren’t a borrower on the loan. However, even if it’s fair and legal, this situation may pose a serious issue if you were to experience financial instability without the reverse mortgage’s ongoing income.
Additionally, the reverse mortgage’s life expectancy set apart (LESA) account, if it has one, cannot be accessed by an eligible non-borrowing spouse. The purpose of the LESA account is to guarantee that the borrower can make timely payments for homeowners insurance and property taxes. Additionally, it limits how much lifetime home equity the borrower spouse may access.
As long as they get married before the borrower passes away, same-sex partners who were in serious relationships but were unable to legally get married when a reverse mortgage was secured may have the non-borrowing partner turn into an eligible non-borrowing spouse.
How Widows and Widowers Can Avoid Losing Their Homes
In order to maintain eligibility for a reverse mortgage and continue residing in the property, the non-borrowing spouse must continue to fulfill the following requirements:
If your loan mandates flood insurance, you must continue to pay the payments. Any homeowner association (HOA) fees follow the same rules.
Up until the loan is paid off by refinancing, selling the house, or allowing the lender to take possession of the property, the reverse mortgage amount will continue to accrue interest and monthly mortgage insurance fees. Selling the property soon after the death of the borrowing spouse could be a wise move if getting cash is more vital than living in the house. However, it depends on how much the house is worth and how much you would take home after paying off the reverse mortgage and defraying the expenses of selling the house.
Is There Any Way for a Surviving Eligible Non-Borrowing Spouse to Get More Money From a Reverse Mortgage?
Yes. The surviving spouse may be allowed to refinance the reverse mortgage if they are 62 years or older. They would need to be able to use the money from the refinancing or some other source to pay down the current debt. However, refinancing may not be an option. The amount will depend on the reverse mortgage debt, the value of the house, the current interest rates, and the age of the surviving spouse.
What Happens if an Eligible Non-Borrowing Spouse Defaults on a Reverse Mortgage?
The eligible non-borrowing spouse must be given 30 days by the mortgage servicer in order to cure the default—that is, to rectify the issue. For instance, the non-borrowing spouse would have 30 days to make up any missing homeowner’s insurance or property tax payments and present documentation to the mortgage servicer. If the non-borrowing spouse is unable to resolve the issue, the loan may become due and payable by the servicer.
To Get a Reverse Mortgage, Should I Take My Non-Borrowing Spouse Off the Title?
According to experts, the non-borrowing spouse shouldn’t consent to having their name removed off the title. If their borrowing spouse passes away before them, doing so will reduce their rights.
The Bottom Line
Reverse mortgage access is essential for many seniors who want to age in place. Reverse mortgages may come to the rescue when retirement funds, Social Security, and Medicare aren’t enough to cover living costs and medical expenditures. Reverse mortgages may be obtained by even financially secure seniors as a safety net against market downturns and outliving their funds.
In 2021, legislation governing reverse mortgages will change, assisting more widows and widowers who do not borrow to keep their houses. The non-borrowing spouse might still lose the house, however, if HUD awarded the reverse mortgage case number to the borrowing spouse before August 4, 2014.
If you (or your spouse) have previously obtained a reverse mortgage, be sure you are aware of the regulations that apply to your specific circumstance. Think about scheduling a consultation with a HECM counselor, lawyer, or financial planner with experience in reverse mortgages. Before it’s too late, they may assist you in developing a strategy to safeguard the non-borrowing spouse’s financial and home stability.
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