A reverse mortgage is a source of supplemental income for seniors who have built up enough equity in their primary residence. The loan isn’t payable until they pass away or stop satisfying the occupancy requirements for a loan. If you have a reverse mortgage, or are thinking about applying for a reverse mortgage, it’s critical that you understand reverse mortgage occupancy requirements so that you don’t violate one of them by accident. It may be hard to believe, but if you don’t maintain the occupancy requirement of a reverse mortgage, your lender can automatically foreclose upon your home. Got your attention yet? Be sure to know the rules and requirements regarding occupancy tied to your reverse mortgage. Trust & Will explains.
Do you have to live in a house with a reverse mortgage?
Yes. One of the requirements of taking out a reverse mortgage is maintaining the property as the primary residence of the borrower. If the borrower moves away, sells the house, or passes away, then the reverse mortgage balance becomes payable and due in full.
A principal residence is owned by an individual who lives there permanently and for the majority of the calendar year. They can only own one principal residence at a time. The only exception is if they are temporarily or permanently in a healthcare institution, so long that the mortgage also has a co-borrower who lives at the residence more or less full-time.
Residency rules for reverse mortgages
While the general residency rule for a reverse mortgage is straightforward, there are other rules that help determine a variety of scenarios and issues that may come up.
Here are some additional reverse mortgage occupancy requirements:
Notify your lender if you plan to be away for less than six months, but more than two months. This still satisfies the primary residence rule, but being away for an extended amount of time could cause the lender to think otherwise. Being proactive and letting them know in advance can help you avoid any issues.
You cannot claim your home as a principal residence if you’re away from it for more than six months for nonmedical reasons. The reverse mortgage will become due and payable in full. Unless you repay the loan, you will be forced to move out.
You can still claim your home as a principal residence if you are away from it for an extended period of time for medical reasons. The limit is 12 consecutive months, and you must be staying at an official healthcare facility. This includes hospitals, nursing homes, assisted living facilities, and rehabilitation centers.
The above rule changes if you plan to be away for more than 12 consecutive months (for valid healthcare reasons only.) Unless you have an official co-borrower living in your home, the mortgage lender will count this as your having left your principal residence. The reverse mortgage loan will become due in full and anyone living there must leave unless they can repay the loan in full.
Commonly asked questions about reverse mortgage occupancy requirements
Reverse mortgage rules can be complicated. If you’re considering taking out a reverse mortgage, or currently have a reverse mortgage, then you’ll naturally have some specific questions about your unique circumstances.
Here are the answers to several commonly asked questions about reverse mortgage occupancy requirements.
How long do you have to live in a house before you can do a reverse mortgage?
Unfortunately, there is no direct answer to this question. You must be at least 62 years of age, and you must have built up a solid amount of equity in your home. This requirement changes from lender to lender, so the answer to this question is best found through your potential lender.
For instance, The Lending Tree states that the general rule of thumb is 50 percent. In other words, you must have lived in your house long enough and paid enough mortgage payments to build up 50 percent equity in your home.
For a rough calculation, simply take the current value of your house and subtract the balance on your traditional mortgage (how much money you owe on it.) If you owe roughly half or less of the current market value of your house, then you’re likely a good candidate for a reverse mortgage.
What are eligibility requirements for reverse mortgages?
Curious if you’re eligible for a reverse mortgage? Here are some eligibility requirements:
Every borrower must be on the home title and must be 62 years old or older. Reverse mortgage lenders typically loan more the older you are.
You must live in the home as your primary residence in order to qualify for the reverse mortgage. You cannot use a vacation or rental property.
You must either own the house free and clear or have built up at least 50 percent equity in the home to be eligible. (The exact equity requirement varies from lender to lender.)
You must meet with a counselor approved by the Department of Housing and Urban Development (HUD) before you can apply for the loan. The counselor ensures that you understand how a reverse mortgage works, as well as the associated costs and other downsides.
Can you be kicked out of your house with a reverse mortgage?
Yes, it is possible that you can get kicked out of your house with a reverse mortgage taken out against it. This primarily happens when you violate one of your lender’s reverse mortgage rules. Common instances include when you no longer live in the home as your primary residence, default on your property taxes or homeowners’ insurance, or don’t maintain the home according to the Federal Housing Administration (FHA) requirements (if your reverse mortgage is financed through a federally-insured product.)
Mentioned earlier, you’re required to complete a counseling session before you are permitted to apply for a reverse mortgage. The counselor will help you understand the reasons for which you could get kicked out of your home and how to avoid them.
Learn more about reverse mortgages
A reverse mortgage can be a great financial tool in retirement when executed fully to your benefit. However, there are some tricky rules that can be easy to violate. This guide explained the reverse mortgage occupancy requirements that you should be aware of. Even an extended vacation or long hospital stay could inadvertently trip you up and put your house in jeopardy. Avoid an unintentional foreclosure on your home by knowing the rules and abiding by them.
To learn more about reverse mortgages and its different sets of rules, be sure to read each of our reverse mortgage-related guides:
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