Who Owns the House With a Reverse Mortgage?
A reverse mortgage is an option if you’re over 62 with a paid-off or mostly paid-off home and need to borrow money. Unlike a regular mortgage, a reverse mortgage pays you money, so that your outstanding balance grows over time instead of shrinking.
You’ll also need to agree to certain conditions, such as keeping up with maintenance and property taxes and living in your home full-time. Once you’re no longer able to do this, your reverse mortgage balance will come due, and it’ll be up to those who inherit your home to settle the balance.
Since your mortgage balance increases over time without you making any monthly payments—and because your lender must eventually be repaid, one way or another—many people get confused about who owns the house in a reverse mortgage. We’ll help clear that up in this article.
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Who owns the house in a reverse mortgage?
Generally, the borrower retains ownership of the home, even if a reverse mortgage has been taken against it.
When you think about it, it’s not any different from a regular mortgage. Although we often refer to parts of your home that you “own” and that your lender “owns” when talking about home equity, the legal truth is that you—as the person listed on the title—have owned the entire home all along.
It’s just that your lender also has a lien against it, and if you don’t repay the loan, it will eventually become the new owner through the foreclosure process. The same is true with a reverse mortgage.
However, because a reverse mortgage unfolds a bit differently after you pass away or otherwise move on from your home, it can get a bit confusing from there. Here’s a quick chart to sort out who owns the house in a reverse mortgage at various points in time:
| Scenario | Who owns the house? |
| Borrower is still alive and living in the home | Borrower |
| Eligible non-borrowing spouse is still alive and living in the home | Eligible non-borrowing spouse |
| Heirs pay off reverse mortgage balance | Heirs |
| Heirs sell the home | New homebuyer |
| Heirs hand over the home’s title | Lender |
Borrower is still alive and living in the home
You’ll be required to undergo one-on-one financial counseling to take out a home equity conversion mortgage (HECM), the most common type of reverse mortgage. This helps you understand your rights and responsibilities, and it helps protect your loved ones.
Your spouse can either be listed as a co-borrower on the loan or not. If not, you’ll declare them as a “non-borrowing spouse,” which—for HECMs originated after August 4, 2014—makes them eligible to stay in the home after you pass on or move out, without worrying about repaying the loan balance.
Non-borrowing spouse is still alive and living in the home
If the borrower is no longer living in the home, it immediately becomes due—unless an eligible non-borrowing spouse still lives there. In this case, the spouse could qualify for a “deferral,” so while the balance would still be due eventually, they’d get to keep living there.
To be an eligible non-borrowing spouse, you need to meet these criteria:
- Be currently living in the home.
- Own the title to the home, or be able to get it within 90 days.
- Be married to the borrower when they took out the reverse mortgage, and be identified in the loan documents.
- Keep up with the loan requirements, such as staying up-to-date on property taxes and maintenance.
Heirs pay off reverse mortgage balance
Once the borrower passes away, the home passes on to the next person as in any other situation. If someone else—such as a spouse—is listed on the home title, they retain ownership of the home. If not, the heirs may receive the home automatically or it may need to go through probate court.
In any case, the reverse mortgage is now due. Whoever owns the home can pay off the remaining loan balance or 95% of the home’s value, whichever is less.
This means even if the reverse mortgage balance exceeds the home value, heirs will never pay more than that. Rather than paying straight-up cash for the home, many heirs choose to take out a mortgage at this time to pay off the reverse mortgage lender.
Heirs sell the home
Even at a 5% discount, paying off the full home value is often too much for heirs. In that case, they can choose to sell the home. If any money remains after paying off the reverse mortgage balance, they can keep it as an inheritance.
Here, too, heirs have a slight advantage in that they won’t ever have to repay more than 95% of the home’s actual value, even if they opt to sell it.
Heirs hand over the home’s title
Negotiating a home sale is a lot of work, especially when you’re also dealing with funeral arrangements.
If heirs don’t want to go through the hassle of selling the home—especially if they wouldn’t get much, if any, cash for it to keep for themselves—and can’t pay it off themselves, then a final option is a deed in lieu of foreclosure.
This is a simple transfer: the lender gets the title to the home, and the remaining reverse mortgage is satisfied.
Does a reverse mortgage still need to be repaid if you no longer own the home?
Yes. If you no longer own the home because you sold it or someone foreclosed on it due to unpaid property taxes, for example, your reverse mortgage will become due immediately.
Unlike most loans that require monthly payments, a reverse mortgage must be repaid in a single balloon payment.
If you sold your home, you’ll need to use some of the home sale proceeds to pay off the reverse mortgage. Otherwise, you’ll need to find another way to repay the reverse mortgage. A nonprofit credit counseling agency may be able to help, or you may need to seek legal assistance.
Things get a bit muddier if you’re no longer in the picture. Remember, the home title and the reverse mortgage balance are separate things. The reverse mortgage balance will always be attached to the home until it’s paid off, but your heirs may own the home’s title.
FAQ
Can I sell my home if I have a reverse mortgage?
Yes. When you sell your home, proceeds from the sale are used to pay off your reverse mortgage. Any leftover money after repaying the mortgage goes to you. Keep in mind that specific fees or penalties might be associated.
What happens if the reverse mortgage loan balance exceeds the home’s value?
If the reverse mortgage loan balance is higher than the home’s value, FHA insurance will cover the difference. This means that homeowners or their heirs will never owe more than the house is worth.
Can I refinance a reverse mortgage?
Yes, you can refinance a reverse mortgage. The reason to do so often involves increasing the loan amount or gaining access to more funds. Weigh the costs of the process against potential benefits.
Are there insurance or maintenance requirements for homeowners with a reverse mortgage?
Homeowners with a reverse mortgage must meet specific requirements, such as carrying homeowners insurance, keeping up with home maintenance, and paying property taxes. Noncompliance could lead to repayment being due in full.
What are the implications of a reverse mortgage for heirs?
If a homeowner with a reverse mortgage passes away, the heirs have several options. They can repay the mortgage and keep the property, sell the home to pay off the loan or let the lender sell it.
Can a reverse mortgage affect my government benefits?
Some government benefits, such as Medicaid and Supplemental Security Income, could be affected by a reverse mortgage because it increases your liquid assets. But it won’t influence Social Security or Medicare. It’s best to consult with a financial professional for specific situations.
What steps should I take if I change my mind after closing on a reverse mortgage?
If you decide to back out of a reverse mortgage after closing, you have a “right of rescission”. This is a window of three business days during which you can cancel the contract without penalty. Once this period passes, the decision to back out becomes more complicated and potentially expensive.
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