What Are the Residency Rules for Reverse Mortgages?

If you own your own home, you may be able to tap into the equity of your residence to get some extra money through a reverse mortgage. The amount you qualify for depends on how much equity you have. While you don’t have to make regular payments on the loan, the home must be your principal residence, and the entire reverse mortgage becomes due if you are absent from the home for more than six months (or more than 12 months for a medical reason). These are the residency requirements for maintaining the loan.

How Do Reverse Mortgages Work?

Homeowners aged 62 and over who have a considerable amount of equity in their homes may be able to access cash by getting a reverse mortgage. This is a special type of loan that allows qualifying homeowners to borrow based on the total equity in their properties. Lenders can offer them funds in a lump-sum payment, fixed monthly payments, or line of credit.

There are three types of reverse mortgages. The home equity conversion mortgage (HECM) is the most common type. The loan amount is based on the lesser of:

If you need to borrow more, you can look into a jumbo reverse mortgage, also called a proprietary reverse mortgage. Individuals may also qualify for a reverse mortgage through their local or state government.

Unlike other mortgages, reverse mortgages don’t require regular monthly payments. Instead, the entire loan comes due when the homeowner dies, moves away from the home permanently, or sells the property.

You must meet certain requirements to qualify. Lenders require the loan to be taken against your principal residence. If you plan to live in your home until you pass away, that might not seem like a hard requirement to meet. Keep in mind that being away from your property, even for a hospital stay, can trigger your lender to foreclose on your loan. In some cases, this can lead to you losing your home.

Residency Rules for Reverse Mortgages

Reverse mortgage rules stipulate that the property on which you have the loan must be your principal residence—where you spend the majority of the year. You can have only one principal residence at a time.

In addition to this general rule, other rules determine how long you can be away from your home and still maintain a reverse mortgage on it. Here is a summary of these rules:

• Notify your lender if you plan to be away from your property for a period of time that lasts between two to six months. You’ll need to do this to let the lender know that you continue to reside at your permanent residence and avoid violating the rules.
• Being away for more than six months for a non-medical reason disqualifies the property as a principal residence.
• The home is no longer your principal residence if you are away in a healthcare facility. This includes being admitted to a hospital, rehab center, assisted living facility, or nursing home for more than 12 consecutive months.

If you are away for a non-medical or medical reason for the noted times, you run the risk of triggering the reverse mortgage to come due. If so, you must repay your loan or sell the property. It may also trigger a deed-in-lieu of foreclosure. Anyone in the home must vacate the property or repay the loan in full. This doesn’t apply if the person living in the home qualifies as an eligible non-borrowing spouse.

The rules are slightly different if a co-borrower lives in the home. Many couples add both spouses to the reverse mortgage documents as co-borrowers, and doing this can help you avoid problems. As long as one co-borrower continues to live in your principal residence, they can remain and receive loan payments, even if you leave the property permanently.

Issues with the Residency Rules for Reverse Mortgages

The residency rules noted above for reverse mortgages can give rise to some difficulties and issues. 

Consider a couple that lives in a home together where only one person is listed on the reverse mortgage documents. The loan becomes due in full if the borrower must be admitted to a nursing home for more than 12 months. This means that their spouse has to leave the house and sell it to satisfy the outstanding debt.

If your spouse is added to the reverse mortgage when it’s taken out, it may prevent the spouse from being forced out. However, the property taxes and insurance must still be paid during the borrower’s absence and the home must be maintained.

Another common issue stems from the requirement to prove that you live in your principal residence for most of the year. Most lenders require an annual certification that your home is your principal residence. Usually, this is done through a postcard or other notice sent by mail at the same time each year. If your spouse is designated as an eligible non-borrowing spouse in the loan documents, you will also need to certify that you are still married and that your spouse lives in the home as their principal residence.

It is important that you sign and return your annual occupancy certification immediately. If you do not, then your lender may think that you’ve moved away and even start foreclosure proceedings on your home. 

The Bottom Line

Reverse mortgages come with residency rules. To have a reverse mortgage on a property, it must be your principal residence, meaning that you live there for the majority of the year. Your reverse mortgage will mature if you are away from your property for more than six months for a nonmedical reason or more than 12 consecutive months in a medical facility. As a result, the remaining part of the loan must be repaid. This can be avoided if you add your spouse to the reverse mortgage as either a co-borrower or an eligible non-borrowing spouse. Be sure to contact an HECM counselor to review your financial situation and determine if a reverse mortgage is right for you.