Can I lose my home with a reverse mortgage?
THE SHORT ANSWER
You keep title to your home, and there are no required monthly mortgage payments. The loan only becomes due if you sell, move out for good, pass away, or don't keep up your property taxes, homeowners insurance and basic maintenance. That last group is where most problems start, and most are preventable.
What this means for you
Keep up three things and the home stays yours.
- Pay property taxes and homeowners insurance on time (and HOA dues, if any).
- Keep the home in reasonable repair.
- Return the yearly occupancy letter from your servicer so they know you still live there.
- If money gets tight, call your servicer or a HUD counselor before you fall behind.
Watch the bills, not the loan balance.
- Offer to help track tax and insurance due dates.
- Watch for the yearly occupancy letter and make sure it gets returned.
- If your parent moves to care, know that more than 12 months away can make the loan due.
Default risk is mostly a cash-flow question.
- Review whether a set-aside for taxes and insurance (a LESA) makes sense for the client.
- Build property charges into the retirement income plan.
- Plan for the 12-month rule if a move to assisted living or memory care is likely.
When the loan becomes due
- The last borrower passes away.
- The home is sold or the title is transferred.
- The last borrower moves out permanently, including being away more than 12 months in a row for health reasons.
- Property taxes, insurance or HOA dues go unpaid.
- The home falls into serious disrepair.
What protects you
Before the loan closes, the lender does a financial assessment to make sure you can keep up property charges. If there's doubt, part of your loan can be set aside to pay taxes and insurance for you, called a Life Expectancy Set-Aside (LESA). If you do fall behind, servicers typically work with borrowers on repayment plans before taking any action, and a HUD-approved counselor can help for free.
SOURCES
- HUD Handbook 4000.1, HECM origination and servicing
- Consumer Financial Protection Bureau: Reverse mortgages
- HUD housing counseling line: 800-569-4287
Rules change. This page is general education, not advice for your situation. Talk with a licensed professional before deciding.