Reverse mortgages can provide an additional income stream for homeowners. This type of loan allows eligible homeowners to tap into their equity and receive monthly payments or a lump sum, without having to repay anything to the lender immediately. If you live with someone, either as a roommate or romantic partner, it’s important to understand how co-borrowing for a reverse mortgage works and what rights and responsibilities it entails.
Key points to remember
- Reverse mortgages are designed to allow homeowners to convert their home equity into income.
- Married and unmarried couples can take out reverse mortgages together, but this can have financial repercussions if one person moves out or dies.
- Unmarried partners and roommates should be aware of potential financial liabilities as well as their property rights if the other partner or roommate leaves the home.
- Failure to pay on a reverse mortgage can result in foreclosure.
How a Reverse Mortgage Works
A reverse mortgage is a special type of loan designed for one purpose: to allow eligible homeowners to withdraw equity from their home. It may look like a home equity loan, but it’s not the same thing. With a home equity loan, the borrower receives a lump sum which he must then repay to the lender with interest and fees added. A home equity loan is actually a type of second mortgage secured by the property itself.
With a reverse mortgage, the homeowner can receive a lump sum or monthly installments against their equity from the reverse mortgage company. They are not responsible for making monthly payments on the balance, although interest and fees may accrue. Once the homeowner is no longer using the home as their primary residence, either because they sold it, moved into a retirement home, or died, the full balance becomes payable.
Can unmarried couples have a reverse mortgage?
Reverse mortgages can be a popular way for retired couples to create an additional income stream, assuming they meet the eligibility criteria. Being married and listed as a co-borrower confers certain rights and protections if either spouse leaves the home for any reason. Specifically, if one co-borrower moves or dies, the other co-borrower can stay in the home without having to pay anything for the reverse mortgage balance.
This same protection is extended to unmarried couples if both are listed as co-borrowers on the reverse mortgage. This means that whether you’ve been with your partner for 20 years or two months, if they move or die, you can retain your right to stay in the home as long as your name is on the reverse mortgage documents.
Once you vacate the home and no longer use it as your primary residence, any remaining balance on the reverse mortgage will be due. So if you were to move, you would be responsible for the balance as a co-borrower. But if you were to pass away, the person (or persons) who inherited the house would be responsible for settling the balance in order to retain ownership of the property.
An unmarried reverse mortgage co-borrower should be added to the title of the house in order to have ownership rights to the property. [FC: Add a citation here, plz/jc]
Can roommates have a reverse mortgage?
Roommates can take out a reverse mortgage together as co-borrowers as long as they meet the eligibility requirements. For home equity conversion mortgages, for example, you must:
- Be 62 or older
- Own the property or have paid off the majority of the mortgage
- Have financial resources to pay for home insurance, property taxes, upkeep and upkeep
- Not be delinquent on any federal debt, including student loans or taxes
- Live in the house and use it as your primary residence
- Attend HUD-approved consumer advice
Co-borrowers of a reverse mortgage must also meet credit score and income requirements set by the reverse mortgage company. If both roommates are listed as co-borrowers, each has the right to stay in the house if the other moves out or dies.
You may want to consult with an attorney about the legality of taking out a reverse mortgage with a roommate.
If your partner or roommate is not a co-borrower
What if you take out a reverse mortgage on your home and you have a partner or roommate who lives with you but is not listed as a co-borrower? This can create a problem for them if you die, as the roommate or partner will first need to establish their legal right to stay in the house.
If a roommate or partner is not listed on the title or deed to the house and you do not have a written agreement that they have ownership rights, they may be required to vacate the property . Even if they are able to prove that they have a right to be in the house, that does not settle the question of what happens to the reverse mortgage.
Generally, the balance will still have to be paid and the liability will fall to the heirs of the original borrower. Their options for paying off the balance could include:
- Sell the house and use the proceeds to pay off the debt
- Refinance the reverse mortgage into a conventional loan
- Use of other assets of the estate or their personal reserves
If you own a home and are considering a reverse mortgage, and you also have a roommate or partner who lives in the property, you may want to discuss the options with your children beforehand. It can also give you the opportunity to express your wishes regarding the roommate’s or partner’s ability to stay in the house if something happens to you.
Reverse mortgages can help create additional income for retirement, but they’re not necessarily right for everyone. Weighing the pros and cons can help you decide if a reverse mortgage might be right for you. You can also research the best reverse mortgage companies to see what types of borrowing options are available.
Can two people have a reverse mortgage?
Two people can be listed on a reverse mortgage as co-borrowers if they meet the eligibility criteria. A spouse who is ineligible due to age may also be listed as an eligible non-borrowing spouse, which may provide the right to stay in the home if the primary borrower moves or dies.
Can you add someone to a reverse mortgage?
You cannot add someone to an existing reverse mortgage you already have. If you want to put someone on a reverse mortgage that you haven’t applied for yet, you can apply together as co-borrowers.
Should a spouse have a reverse mortgage?
A spouse does not have to be listed on a reverse mortgage. But adding your spouse as an eligible co-borrower or non-borrowing spouse can give them certain rights and protections should something happen to you.