We live with my mother-in-law and were present throughout the process of her getting a reverse mortgage.  The broker is fully aware that we live there with her, help keep up the property, and pay living expenses.  He told us if she ever needed to go to a nursing home, if she was in the home at least once a month, they would not recall the loan.  What I am reading here seems contradictory to what we were told.  We were also told about having 12 months to sell or purchase the property upon death.  I am just confused about the nursing home situation now after reading this. -Amy

Reverse Mortgage Occupancy Requirements Explained

Occupancy Requirements in Reverse Mortgage Loan Agreement

I cannot comment on what was said or not said by another originator and was not there for the conversation, but I have always been very honest with my borrowers and their families.

The loan documents make the legal agreement between the borrower and the lender.  The home’s occupancy as the borrower’s principal residence is outlined as a requirement in the three main legal documents – the Note, the Deed of Trust or Mortgage (depending on which instrument your state uses), and the Security Agreement.

I am looking specifically at a Deed of Trust, but all the states have similar wording on their Deeds and Mortgages, and they define the property as no longer being the principal residence when:

The property ceases to be the principal residence of a Borrower for reasons other than death, and the property is not the principal residence of at least one other borrower; or for a period of longer than twelve (12) consecutive months, a Borrower fails to occupy the property because of physical or mental illness and the property is not the principal residence or at least one other borrower.

It sounds like the broker may have been counting entirely on the 12 consecutive months and not paying attention to the “Principal Residence” requirement.  The Promissory Note contains similar language in that it states that the lender may require immediate repayment in full if:

The property ceases to be a Borrower’s principal residence for reasons other than death, and the property is not the principal of at least one other borrower.

So, what qualifies as the “Principal Residence”?  That is defined explicitly in the Security Agreement.  Item 1.8 states:

Principal residence means the dwelling where the borrower shall maintain his or her permanent place of abode and typically spends the majority of the calendar year.  A person may have only one principal residence at a time.  The property shall be considered the Principal Residence of any Borrower who is temporarily or permanently in a health care institution as long as the property is the Principal Residence of at least one other Borrower who is not in a health care institution.  (emphasis added)

Definition of Principal Residence

A principal residence is the location where an individual spends most of the year.  This includes considerations for periods spent in mental or physical health facilities.  The specifics of what constitutes a principal residence are typically outlined in loan documents.

Occupancy Requirements for Reverse Mortgages

For a property to qualify for a reverse mortgage, it must be the borrower’s primary residence, not just occupied for one month out of the year.  If advised otherwise, such information is erroneous.

Temporary Absence and Owner-Occupancy

In cases where an individual, such as a mother-in-law, temporarily moves into a nursing home, they can be absent for up to 12 months.  Beyond this period, the absence may be considered permanent, and the home must be occupied most of the year to maintain its status as owner-occupied.

Loan Repayment and Property Disposal Time Frame

If a lender calls a loan due because the property is no longer owner-occupied, there is no specific hard time frame for repayment.  The process often depends on various factors, including efforts to sell or refinance the home and the property’s condition.  About 12 months are typically given to dispose of the property, though this can vary.

Heirs’ Responsibility and Lender’s Preference

The lender generally prefers this if the borrower’s heirs are actively trying to sell or refinance the property.  However, if the heirs show no intention to sell and the property’s condition deteriorates, the lender may expedite their actions.

Foreclosure Timelines and Communication Importance

Foreclosure proceedings, if initiated, can take many months.  The duration often depends on state laws and the specific circumstances, such as the period the borrower has been absent and the heirs’ intentions.  Effective communication with the lender is crucial in these scenarios to potentially extend time frames and find agreeable solutions.

Occupancy FAQs


Do you have to live in a home with a reverse mortgage?

Yes.  One of the requirements of a reverse mortgage loan is that the property must be your primary residence.

What happens if I move out of my home while I have a reverse mortgage?

If you move out of the home permanently, the reverse mortgage loan will be called due and payable as occupying the property as your primary residence is one of the requirements.  If you have a reverse mortgage and want to move out of the property without selling it, you must first complete a refinance transaction to another type of loan or pay the reverse mortgage off in full.

How long can I be away from the property when I have a reverse mortgage?

The guidelines of a reverse mortgage stipulate that the loan can be called due and payable if the borrower has vacated the property for 12 consecutive months or is no longer their primary residence.  Otherwise, it would no longer be your primary residence and could result in the loan being called due.  For example, if you had to be away from home for 6 consecutive months to rehab a surgery, your loan would not be called due if you went back to the property as your primary residence.  If you split time between two or more locations, you must spend most of your time at the property with the reverse mortgage.

How long can my heir live on the property after I die?

If a homeowner has a reverse mortgage, the loan becomes due upon their passing.  If the heir to the home is living in the property, they cannot assume the loan.  If the heir pays off the reverse mortgage in full, they can live in the property for as long as they choose to.  If the heir cannot pay off the reverse mortgage and plans to sell the home, servicing guidelines will give them ample time to sell the property, and they can live there during that time frame.  They will be given extensions of time in 90-day increments up to a full year to sell the property if they demonstrate that they are trying to sell the home.

How quickly do I move into the property after buying it with a reverse mortgage?

You must move into the property within 60 days after closing on the purchase transaction when you buy the property using a reverse mortgage loan.

If you have a reverse mortgage, can a relative live with you?

Yes! It is still your house, and you decide what you do with the home if you meet the loan terms.  You must reside in the house as your primary residence and pay all property charges on time (taxes, insurance, any HOA dues you may have, etc.).  You must reasonably maintain the home so as not to impair the loan’s security.  After that, you can choose to have other family members move in with you if you wish, you can rent out a spare bedroom for some extra cash if that is your desire, or you can choose to sell the home and move to a new location.  You still own the home, and the home’s equity is also yours.  If you wish to have a relative move in with you, that is your decision and does not violate the loan terms.
Key Triggers: When a Reverse Mortgage Becomes Due

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