A reverse mortgage is a specific kind of loan available to seniors age 62 and older that allows them to turn the equity they’ve built up in their homes into cash they can use for any expense. Because the reverse mortgage is a transaction in which someone borrows against the value of their home, a borrower losing his or her home is possible, but only if he or she does not uphold the terms of the loan.
One of the key conditions that a borrower must observe when engaging in a reverse mortgage loan is paying property taxes and homeowners insurance, along with homeowner’s association fees (if applicable). The borrower must maintain the home as his or her primary residence for the loan to remain active, as well as maintain the home to Federal Housing Administration standards. If the borrower moves permanently or passes away, the loan will be called due and payable.
So, yes it is possible to lose your home with a reverse mortgage, the same way that it’s possible for someone to lose their home by not fulfilling the requirements of a traditional mortgage.
By adhering to the terms of the loan, borrowers can help ensure they will not end up in a situation leading to loan default or foreclosure.
Here are the basic requirements of a reverse mortgage that must be met in order to keep the loan in good standing and avoid defaulting.
Maintain full-time residency in the home
If you have a reverse mortgage and you move out or sell the house, you leave the home for a longer sustained period of six months or more for non-medical purposes or 12 months for any reason, or you pass away while your surviving spouse is not listed on the loan, these are all things that can trigger a foreclosure action that could result in the loss of the home.
If you get a reverse mortgage and your spouse is not named on the loan, then that person becomes what’s called a ‘non-borrowing spouse.’ It is important to disclose at the time of the loan’s closing if there is any non-borrowing spouse or any other person who can claim a right to the home. Additionally, if the named borrower gets married to a spouse who resides in the home after the loan is in place, it’s important to disclose that information to your lender.
Maintain the home’s condition, and keep current on homeowner’s insurance and property taxes
The payment of homeowner’s insurance and property tax is a key requirement of the reverse mortgage and failing to do so has the potential to result in the loan being called due and payable. In addition to staying current on taxes and insurance, and because the most typical reverse mortgage – the Home Equity Conversion Mortgage (HECM) – is insured by the Federal Housing Administration (FHA), the agency has a vested interest in keeping the home in good condition.
You must make sure that the house meets FHA requirements of care for the duration of your time in it, otherwise it’s possible that you loan could be called due and payable while you are still residing in it.
Questions to Ask Your Loan Officer, and Finding More Information
You should most definitely ask your loan officer you’re thinking of engaging into a reverse mortgage transaction with about the specific details of what they can offer you.
While looking around for information, you can also take advantage of ARLO, the All Reverse Loan Optimizer, which can help you to shop around for the best rates and products to find a reverse mortgage that fits your own financial situation best.
It’s also a good idea to talk with your trusted friends and family while deciding if a reverse mortgage is a good fit for your personal financial situation. That way, they can advise you on what your best path forward could be in funding your retirement years. Every individual borrower can have a very different set of guiding circumstances. Those closest to you can probably offer more personalized advice before you sign on the dotted line.