A federally insured reverse mortgage, known as a Home Equity Conversion Mortgage (HECM), comes due when the borrower dies or moves out, according to the Consumer Financial Protection Bureau.
That includes a move for medical reasons that lasts more than 12 consecutive months. A spouse who is not a co-borrower can stay without paying off the balance only by qualifying as an Eligible Non-Borrowing Spouse under U.S. Department of Housing and Urban Development rules.
Three conditions that start at closing
Federal regulations at 24 CFR 206.55 define the term. The spouse must have:
- Been married to the borrower at closing and remained married
- Been disclosed to the lender at origination and specifically named as an Eligible Non-Borrowing Spouse in the loan documents
- Lived in the home as a principal residence and continue to do so
After the last borrower dies, the spouse must keep meeting the loan’s other obligations and make sure the loan does not become due for any other reason. Losing eligibility on any of these points can make the loan due.
As written, the definition excludes a spouse who was not named in the loan documents at closing. A spouse who is a co-borrower is treated differently, and the CFPB says that person can stay on the loan even after the borrower dies. Rules differ for loans with Federal Housing Administration case numbers assigned before Aug. 4, 2014.
What other family members face
Adult children and other relatives who are not co-borrowers can keep the home by paying off the balance with another source of funds, the CFPB says. Heirs who want the home must repay either the full balance or 95% of the appraised value, whichever is less.
If the home is worth less than the loan, heirs can satisfy the debt by selling for at least 95% of the appraised value, and mortgage insurance covers the rest. Heirs are not personally responsible for the shortfall, which puts to rest one of the most persistent reverse mortgage myths.
The CFPB says heirs receive a notice and have 30 days to act, which may extend to six months to allow a sale or financing.
Questions to settle before you sign
Ask the lender to confirm in writing that your spouse is named as an Eligible Non-Borrowing Spouse in the loan documents, and ask what happens to the loan if either of you moves into care. HUD-approved counseling is required before a HECM, and the session is a good place to raise both.
Other reverse mortgage protections are worth checking, too.
Longbridge Financial offers a free quote to homeowners 62 or older who own their home, showing what they would qualify for. A licensed specialist then explains the cost, how repayment works, and what it means for your heirs, with no obligation. Bring up the spouse question first, and get the facts in about two minutes if you want to see a quote.
If you are sorting out how the house fits into your estate, the Money Talks News estate planning solutions may help.
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