Reverse Mortgages for Two-Family Houses

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Reverse Mortgages for Two-Family Houses

For homeowners 62 and older, a reverse mortgage is a particular kind of financial agreement. Without having to make monthly payments as they would with a standard home equity loan or a home equity line of credit, homeowners may access the equity in their homes. If certain conditions are satisfied and you own a single-family or multi-family home, a reverse mortgage can be a possibility.

Key Takeaways

  • With a reverse mortgage, qualified homeowners who are 62 or older may access their home’s equity.
  • If a homeowner uses their two-family property as their main dwelling, they may be eligible for a reverse mortgage.
  • Although borrowers must fulfill age and credit restrictions, reverse mortgages do not demand monthly payments.
  • When the borrower no longer resides in the property, the reverse mortgage must be returned with interest.

How a Reverse Mortgage Works

Reverse mortgages aren’t really standard loans. With a reverse mortgage, a borrower may turn the equity in their property into recurring income. They get regular payments that may be used to cover living costs, medical bills, and other needs in retirement. The homeowner must adhere to the following conditions:

  • their principal dwelling is the home
  • the cost of property insurance and taxes
  • Maintaining the home

As long as the borrower resides in the property, they are not required to repay any of the equity they have borrowed over their lifetime. On the balance, fees and interest accrue. The loaned sum is repayable in full after the borrower no longer resides in the house, for instance because they sold it, moved in with a care home, or died away.

This is distinct from a standard home equity loan or line of credit (HELOC).The house is used as collateral for certain kinds of loans. Up to the maximum amount permitted by the lender, borrowers may borrow equity. There are no age limitations and the money is returned over time with interest. In the event that a HELOC or home equity loan is not repaid, the lender may start a foreclosure process to reclaim title of the property.

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Note

In order to keep ownership of the house after a divorce, one spouse may take out a reverse mortgage to pay off the other spouse’s stake in the property.

Reverse Mortgage and Two-Family Houses

To get a reverse mortgage, a person must fulfill a number of conditions. In general, to qualify for a home equity conversion mortgage (HECM) from the Federal Housing Administration (FHA), you must:

  • Be age 62 or older
  • Own the house entirely or have the majority of the mortgage paid off, since lenders often demand at least 50% equity in the property
  • occupy the home as your primary residence
  • Not have outstanding federal obligations, such as taxes and school loans,
  • own the means to pay property taxes, insurance, and upkeep
  • Attend a reverse mortgage information session authorized by the U.S. Department of Housing and Urban Development (HUD).

The kinds of real estate that qualify for a reverse mortgage also have rules. Single-family dwellings and properties with two to four units are also permitted.

This indicates that if all other requirements are satisfied and you own a two-family house, you may qualify for a reverse mortgage. You may, for instance, be a widow sharing a home with your adult daughter, her partner, and their kids. You could be eligible for a reverse mortgage if you use your house as your primary residence, own it entirely, or almost own it outright.

If you own a duplex, triplex, or quadruplex property and reside in one of the units, you may also be eligible for a reverse mortgage.

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

As long as you remain a homeowner, you normally don’t make any payments during the course of your lifetime. However, you will ultimately need to pay back the cash you borrowed against your equity. Who pays if you live in a two-family home might vary depending on who else’s name is on the reverse mortgage and who is now residing in the property.

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If you co-borrow a HECM with your spouse, an adult child, or another individual, they may continue to live there without having to make any payments on the loan even if you leave the house or die away. If you die away or go into nursing care, your spouse—even if they’re not listed as a co-borrower—may be eligible to continue living in the house without having to pay the remaining loan sum. However, they must keep using the house as their primary abode.

Any person who is not a co-borrower on the reverse mortgage, such as a dependant, a child, a relative, or a spouse who is not an eligible non-borrowing spouse, will need to pay off the loan sum in order to remain in the house. They will have to sell the house if they are unable to come up with the cash to pay off the reverse mortgage.

Important

Anyone responsible for paying off the reverse mortgage does not have to make up the difference if the loan sum exceeds the value of the house.

What Is a Reverse Mortgage?

An eligible homeowner must be 62 years of age or older to qualify for a reverse mortgage, or a home equity conversion mortgage (HECM), if it’s a form of reverse mortgage insured by the Federal Housing Administration (FHA). Once the borrower vacates the property, the debt is due in full.

Can I Get a Reverse Mortgage If Someone Else Lives With Me?

Your ability to get a reverse mortgage will not be impacted by your marital status or if you live with an adult child, a dependant, or another relative. If you reside in a two-family duplex, you are also eligible for a reverse mortgage as long as you occupy one of the units as your primary home.

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When Must a Reverse Mortgage Be Repaid?

Unless the borrower no longer resides in the property, a reverse mortgage does not need monthly payments throughout the borrower’s lifetime. The debt is fully repaid if the borrower moves to a new residence, enters a facility providing 24-hour nursing care, or passes away.

Who Pays Off a Reverse Mortgage?

If a spouse or adult child lives in the house when a reverse mortgage is due, or if they are designated as a co-borrower on the loan, then they are responsible for paying it back. If the borrower dies and there are no surviving co-borrowers or inhabitants of the property, the balance would be paid by the borrower’s heirs.

The Bottom Line

For homeowners who have built up a substantial amount of equity, reverse mortgages may provide an extra source of income in retirement. Knowing when and when not to apply for a reverse mortgage, as well as who is in charge of paying it back, is crucial if you reside in a two-family house. To locate the reverse mortgage that has the best terms for your scenario, it may also be good to compare several reverse mortgage possibilities.

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