Marry someone who has a reverse mortgage
A reverse mortgage is a special type of loan that allows homeowners to access the equity in their home and use it as a source of income. Rather than making payments to a lender, the homeowner receives monthly payments or a lump sum payment from the reverse mortgage company. This type of arrangement can provide additional income for eligible borrowers, but it’s important to understand how you might be affected if you marry someone with a reverse mortgage.
Key points to remember
- A reverse mortgage allows eligible homeowners to take equity out of their home without having to make monthly payments to a lender.
- Reverse mortgages subject to Federal Housing Administration (FHA) guidelines are called home equity conversion mortgages (HECM).
- Marrying someone with a reverse mortgage can affect your ability to stay in the house later if your new spouse moves out or dies.
- Purchasing a life insurance policy for the borrowing spouse could provide you with the funds to pay off a reverse mortgage should something happen to them.
Reverse Mortgage Basics
A reverse mortgage is a type of loan agreement in which a homeowner derives income from the equity in their home. Reverse mortgages may accrue interest and fees, but no payments are due as long as the borrower uses the home as their primary residence. This is different from a home equity loan, which requires the borrower to make repayments to the lender over time.
Payment on the reverse mortgage balance would be required if the borrower:
- sell the house
- Leaves the dwelling and no longer uses it as a principal residence
Reverse mortgages that follow Federal Housing Administration (FHA) guidelines are called home equity conversion mortgages (HECM). HECMs have specific eligibility guidelines that must be followed. Generally, you may be able to get a home equity conversion mortgage if you:
- You are 62 or older
- Own your home or have paid off most of the mortgage
- Have no outstanding federal debts, such as taxes or student loans
- Have financial resources to pay property taxes, home insurance, upkeep and maintenance
- Use the property as a primary residence
- Complete a HUD-approved counseling session
As with any other type of home loan, lenders also consider credit scores, credit history, and income for approval.
Reverse mortgages can be used for single-family homes as well as multi-family dwellings, including duplexes, triplexes, and quadplexes, as long as the borrower lives in one of the units.
Marry someone with a reverse mortgage
Marrying someone who has a reverse mortgage on their home can raise significant issues if you later divorce or your new spouse dies. Specifically, your rights will depend on when the reverse mortgage was taken out and whether your name is on the reverse mortgage.
Assuming the reverse mortgage is already in place when you get married, you would not be listed as a co-borrower nor would you be included as a non-borrowing spouse. This means that even if you inherit the property when your spouse dies, you will be responsible for paying off the balance of the reverse mortgage if you want to keep the house.
This payment would be due in full. If you don’t have cash available to pay the balance, you can do one of three things:
- Take out your own reverse mortgage and use the proceeds to pay off the existing reverse mortgage.
- Refinance the reverse mortgage into a conventional mortgage in your name only.
- Sell the house and use the proceeds to clear the debt.
If you want to stay in the house then you will have to consider whether it makes more sense to get your own reverse mortgage or to refinance the existing debt into a conventional mortgage.
On the pro side, either would keep you at home. But you’ll have to decide whether you want to pay off the debt now, in the form of mortgage payments, or leave the debt to your heirs (or spouse) to deal with later. Refinancing a reverse mortgage into a new home loan means you will have payments to make during your lifetime. Whether or not this is feasible may depend on your overall financial situation.
If you get divorced, your rights will depend on whether or not you register on the title deed. In this case, your spouse would be considered the sole owner and as long as he intends to stay in the house, he would be responsible for the reverse mortgage.
Reverse Mortgage Life Insurance
If you marry someone who already has a reverse mortgage in place, you may be able to create financial protection for yourself by purchasing a life insurance policy. Specifically, you could get a policy for your spouse that would be enough to pay off the reverse mortgage balance if something happened to them. This would ensure that you would be able to stay in the house.
When comparing life insurance options, consider whether term or permanent life insurance makes more sense and what you might pay for one or the other based on age and health status of your spouse. Term life insurance is usually the cheaper of the two, but premium costs can still be high for someone in their 60s or 60s. Also find out if your spouse has any pre-existing conditions that could affect the type of coverage they qualify for.
What happens to the spouse of a reverse mortgage borrower who dies?
Spouses may be entitled to stay in the home if the borrower dies, as long as they were already married when the reverse mortgage was taken out. Otherwise, spouses who married someone with an existing reverse mortgage would have to pay off the balance owed in order to stay in the house after the borrower dies.
Can borrowers lose their home with a reverse mortgage?
A borrower can lose their home with a reverse mortgage if they no longer use it as their primary residence. This can happen if they move into a second home they own or if they have to move permanently to a nursing facility. In either case, the entire reverse mortgage balance will need to be paid off to avoid foreclosure.
Can heirs waive a reverse mortgage?
Heirs who inherit a home with a reverse mortgage, including spouses, are responsible for paying the balance owing if the borrower dies. The exception would be for spouses who inherit property and are listed as co-borrowers on the reverse mortgage or eligible non-borrowing spouses.
Reverse mortgages can be used to supplement retirement income, but there are some important rules to understand, especially if you’re marrying someone who has a reverse mortgage. Talking to an estate planning lawyer can be a good idea for newly married or soon-to-be-married couples who are worried about what will happen to the home if the borrower dies.