What Are the Residency Rules for Reverse Mortgages?

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What Are the Residency Rules for Reverse Mortgages?

Seniors with net worth that is mostly based on the value of their property may be able to get cash via reverse mortgages. For homeowners who are 62 years of age or older and have a sizable amount of home equity, a reverse mortgage is a loan. These older citizens are given the opportunity to borrow money using the equity in their homes and receive payments in the form of a lump amount, a set monthly payment, or a line of credit. When the borrower passes away, vacates the property permanently, or sells it, the whole loan sum becomes due and payable.

You must fulfill certain standards in order to be eligible for a reverse mortgage. One of them is that the asset you used as collateral for the loan ought to be your primary home. That may not seem like a difficult requirement to fulfill if your intention is to remain in your house until your death. The fact that you are away from your property, even for a hospital stay, may cause your lender to foreclose on your loan, so you should be aware of this. This can result in you losing your house in certain circumstances.

Therefore, before agreeing to a reverse mortgage, it’s crucial to understand the residence requirements that are involved. We’ll walk you through these guidelines in this tutorial.

Key Takeaways

  • A home must be your primary residence, which means you must spend the most of the year there, in order to obtain a reverse mortgage on it.
  • If you are absent from the property for more than six months for a non-medical cause or for more than 12 continuous months in a medical institution, your reverse mortgage will mature.
  • The borrower may be obliged to repay the remaining balance of the loan if the residence condition is broken.
  • If the occupancy standards are broken, a spouse who is on the reverse mortgage as a co-borrower or an eligible non-borrower may not be evicted.
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Residency Rules for Reverse Mortgages

The home on which you hold the reverse mortgage must be your primary residence, which means it must be the place you spend the bulk of the year, according to the requirements for reverse mortgages. There can only ever be one primary house per person.

There are further guidelines that govern how long you may be away from your house while keeping a reverse mortgage on it in addition to this basic rule. Here is a list of these guidelines:

  • You must let your lender know that you are staying at your primary house if you are gone for more than two months but less than six months. By doing this, you may stay in compliance with the residence requirements for reverse mortgages.
  • You cannot list a home as your primary residence if you are absent from it for non-medical reasons for more than six months. The reverse mortgage will then become due, which may require repayment of the debt or satisfaction via the sale of the property or a deed in lieu of foreclosure. Unless they can pay back the debt, anybody residing in the house will need to leave.
  • If there is no co-borrower residing in your house and you are gone for more than 12 consecutive months in a healthcare institution, such as a hospital, rehabilitation center, nursing home, or assisted living facility, you will also be deemed to have left your permanent residence. The reverse mortgage debt would then become due and be required to be repaid or fulfilled via the sale of the home or a deed in lieu of foreclosure. Everyone residing there must leave unless they are able to pay back the debt or are a non-borrowing spouse who meets the requirements.

If a co-borrower resides in the property, there are a few minor differences in the regulations. In order to prevent issues, many couples name both spouses as co-borrowers on the reverse mortgage forms. Even if you leave the property permanently, as long as one co-borrower is there, they may (and will continue to receive loan payments).

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If one of you must relocate into a nursing facility for more than a year, having your spouse (or any family members over 62) sign on as co-borrowers on the reverse mortgage may avoid a forced sale.

Issues with the Residency Rules for Reverse Mortgages

Reverse mortgage residence requirements, as described above, may provide some challenges and problems.

For instance, if a couple shares a house but only one of them is named on the reverse mortgage paperwork, and if that person has to spend more than a year in the hospital or a nursing home, the loan will become due. This may require their spouse to vacate the property and sell it in order to pay off the debt. It could avoid the forced separation of the marriage if your spouse has been joined to the reverse mortgage at the time it is taken out. While the borrower is away, the house must still be maintained and the taxes and insurance paid.

The obligation to demonstrate that you dwell in your primary house for the majority of the year gives rise to another frequent problem. The majority of lenders will demand that you confirm annually that your house is your primary residence. This is often accomplished by the mailing of a postcard or other kind of reminder around the same time each year. You must confirm that you are still married and that your spouse still resides in the house as their primary residence if your spouse is listed in the loan paperwork as an eligible non-borrowing spouse.

You must promptly sign and submit your yearly occupancy certification. If you don’t, your lender can assume that you’ve moved out and potentially begin the process of foreclosing on your house.

Does a Reverse Mortgage Have to Be on a Primary Residence?

Yes. Loans under the Home Equity Conversion Mortgage (HECM) program are only available for main homes. For the duration of the loan, the borrower of a reverse mortgage must occupy the property as their principal home.

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How Long Can I Be Away From Home With a Reverse Mortgage?

According to the regulations, a home cannot be considered your primary residence unless you occupy it for a significant portion of the year. This implies that you are not permitted to travel for more than six months at a time without a valid cause.

Can I Move From a House With a Reverse Mortgage?

The reverse mortgage will become owing if you sell the home you have a reverse mortgage on. As a result, you will need to sell your home or find another method to get the money necessary to pay back the remaining loan debt.

The Bottom Line

Residency requirements apply to reverse mortgages. A home must be your primary residence—meaning you spend the bulk of the year there—in order to get a reverse mortgage on it.

Your reverse mortgage will mature if you are absent from your home for more than six months for a non-medical cause or for longer than 12 continuous months in a medical institution. The remainder of the debt is thus due for repayment. Even though the principal borrower has broken the residence rules, if your spouse is added to the reverse mortgage as a co-borrower or an eligible non-borrowing spouse, they could be permitted to stay in the house. It’s crucial to speak with a HECM consultant to assess your financial status and decide if a reverse mortgage is the best option for you.

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