Normally, you can not fully rent your house with a reverse mortgage. But there can be some situations in which you might be eligible for partially renting your reverse mortgage property. So, what are they?
Well, we are going to find out. In this article, I am going to broadly explain Can You Rent Your House If You Have a Reverse Mortgage? if so, then how, what are the residency requirements for a reverse mortgage, and all the related queries. So, stick with me till the end.
First, we need to fully understand the reverse mortgage and its requirements.
What is a reverse mortgage?
According to Investopedia,
“Reverse Mortgage Loans are a kind of loan in which a homeowner can borrow against the value of their home equity and receive funds as a lump sum, fixed monthly payment, or line of credit.”
Reverse mortgages are a great way for older Americans to generate tax-free income. However, reverse mortgages have some strict rules and they can be complex to understand for senior citizens.
I think the best way to explain this is to give you an example. Let’s say you buy a house, right?
Let’s assume the house costs you $100,000 and for simplicity, you’re going to borrow all the money to pay for the house. That’s rare, but for simplicity’s sake, suppose you borrowed $100,000.
Now, 10 years later, two things are gonna hopefully happen.
The first is that the $100,000 of principal that you borrowed is gonna go down because you’ve been paying off the loan. Let’s consider you have paid 50,000. So, you have 50,000 left to pay.
The second thing is that your house will go up in value. Let’s say it has gone up to $200,000 in value. So what do you have now?
You have the difference between 200,000 and 50,000, which represents 150,000 of equity you have in the house. The problem is you can’t have this equity. You can’t realize it unless you sell your home.
That’s the only way you can realize that 150,000 in equity minus fees. This is where a reverse mortgage comes into play.
If you’re over 62 years or older and have that 150,000 of equity, then you can access the equity in your home through a reverse mortgage. You can receive this equity as a lump sum, fixed monthly payment, or line of credit.
If you want to take a mortgage then learn about Intent To Proceed Mortgage too.
Now, let’s look at the requirements for Reverse Mortgage.
Reverse Mortgage Rules 2022
Here are the basic rules for a reverse mortgage
- The borrower and co-borrower must be 62 years or older. The older a borrower is the more funds he/she gets from Home Equity Conversion Mortgage reverse mortgage.
- The borrower must own the house/property or have at least 50% or more equity in it.
- The borrower must live in the home as a primary residence.
- The borrower must consult with a HUD–approved reverse mortgage counselor before applying for a reverse mortgage.
Well, at this time we have got an idea about the reverse mortgage. So, it’s time to understand the reverse mortgage residency requirements.
Reverse Mortgage Residency Requirements
As we mentioned, a reverse mortgage has some strict rules in terms of residency. These strict rules are known as reverse mortgage residency requirements. They can be quite complicated too. So, for your better understanding here is a simpler version of reverse mortgage residency requirements
The main rule for Reverse Mortgage Residency is
“You must be the primary resident of the house you have a reverse mortgage on.”
Here primary resident means you have lived at the house for at least 6 months or a year and you intend to stay the rest of your life at the house you have taken a reverse mortgage.
However, if you have medical issues or you have to stay somewhere else for some time then the below rules will apply to you
- You have to notify your lender if you are absent from your house for more than 2 months and less than 6 months.
- You can not stay away from your house for more than 6 months for non-medical reasons.
If you stay away from your house for more than 6 months on non-medical grounds then you will be no longer a principal resident and your reverse mortgage loan will be due.
- If you do not have a co-borrower and you stay at a medical facility for more than 12 months then you will no longer be a principal resident and your due has to be paid.
In this case, if your spouse or any other family member needs to pay the dues or they will be forced out of the house and the house will be on sale.
These are the mandatory reverse mortgage residency requirements. They might slightly vary depending on your state and borrower. Now let’s head back to our main topic. So,
Can You Rent Your House If You Have a Reverse Mortgage?
No, according to the reverse mortgage residency requirements you must be the primary resident of the property. So, you can not fully rent your house with a reverse mortgage.
However, there are some situations in which you can partially rent your house with a reverse mortgage. So, What are they?
Justifiable Rental Requirements In Reverse Mortgage
Here are 2 justifiable rental situations in a reverse mortgage.
1. Partially Rent Your Single Unit House
In reverse mortgage you must stay at the house you have taken a mortgage. So, it’s not possible to fully rent it. However, if you have extra space or room then you can partially rent it on a long-term basis.
But you can not use it for overnight rental like Airbnb. Because it is considered a business and your reverse mortgage house can not be used as a business.
2. In The Case of Multi-Unit House
If you have a reverse mortgage on a multi-unit property. Then you can live in one unit and rent out the rest of the units. However, this is only possible for 4 or fewer unit properties.
So, if you have a 4-unit property then you can rent out 3 and live in one.
These are some cases in which you can partially rent your house. However, it’s better to look at the policies for rental of your state or lender before you rent your house.
By now you might have got the answer of can you rent your house if you have a reverse mortgage.
If you want to know about borrowing extra on your mortgage check borrow extra for furniture on a mortgage.
Now let’s have a look at some similar queries.
Can A Family Member Pay Off A Reverse Mortgage?
Yes, a family member can pay off a reverse mortgage. Actually, the borrower, co-borrower, spouse, or any relative can pay off a reverse mortgage.
In most cases, after the death of the borrower, the heirs pay off the reverse mortgage loan.
Do you have to live in your home for a reverse mortgage?
Yes, you have to live as a primary resident of your home for a reverse mortgage. You can not leave your house for longer than 6 months for non-medical purposes.
Actually, reverse mortgages were designed for older citizens without much retirement savings to get a lump sum and live in their houses. So, you must live in your home for a reverse mortgage.
Can You Get A Reverse Mortgage On A Rental Property?
No, according to reverse mortgage residency requirements you can not get a reverse mortgage on rental property. Because to be declared a primary resident you must live in the house for at least 6 months to a year. Only after that, you can apply for a reverse mortgage. So, reverse mortgage rental property is not possible.
However, if your house is partially rented and you have lived in the house for more than 6 months with your tenant then a reverse mortgage on the rental property is possible.
Who owns the house in a reverse mortgage?
Like any other loan, the ownership of the property lies with the borrower in a reverse mortgage.
However, if the borrower dies or breaks the principal residency requirement then the borrower or their spouse or the heirs need to pay the dues. Otherwise, the loan will be repaid through selling the property or deed-in-lieu of foreclosure.
Can you lose your house with a reverse mortgage?
Yes, you can lose your house with a reverse mortgage if you don’t abide by the primary residency rule of a reverse mortgage. Means, if you haven’t
- lived in your house for more than 6 months under non-medical circumstances
- Left your house for more than 12 months due to medical reasons and
- you don’t have a co-borrower or eligible non-borrowing spouse
Then you might lose your house or to keep it you or your heirs have to repay the loan.
Can a family member be added to a reverse mortgage?
Yes, a family member can be added to a reverse mortgage as a co-borrower. However, you can not add a family member to an already existing reverse mortgage.
In case you are thinking about adding a family member, then the person must be 18 or older. This means that he or she will be equally responsible for the repayment of the loan and the property taxes and insurance. Adding a family member as a co-borrower can help you get a larger reverse mortgage loan, as the lender will be more confident that the loan will be repaid.
How long can you live in your home with a reverse mortgage?
In a reverse mortgage, you can live in your house until you pass away. Yes, you heard it right. You can live in your house even if you have exhausted your home equity.
Reverse Mortgages are designed in a way that elderly Americans can get a loan or lump sum against their home equity without ever worrying about losing their house. However, to peacefully live in your house you need to abide by every policy of your lender.
If you are planning to take a reverse mortgage then we would suggest you consult with a HUD-approved reverse mortgage counselor and understand the policies properly.
Moreover, if you have already taken a reverse mortgage then, please consult with a financial advisor to utilize your loan money properly.
That’s it for today. Have a great day!