Can a Family Member Be Added to a Reverse Mortgage?

A reverse mortgage allows homeowners, typically those aged 62 and older, to convert a portion of their home equity into cash. Unlike a traditional mortgage, a reverse mortgage involves the lender making payments to the homeowner, either as a lump sum, monthly installments, or a line of credit. The home’s title remains with the homeowner, who must continue to pay property taxes, insurance, and maintain the property. The loan becomes due and payable when the last borrower permanently moves out or passes away. This article addresses the involvement of family members in these arrangements.

Becoming a Co-Borrower at Loan Origination

When a reverse mortgage is initially established, a family member can be included as a co-borrower if they meet the eligibility criteria. For a Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage insured by the Federal Housing Administration (FHA), all borrowers must be 62 years of age or older.

The home must be occupied as the primary residence by all borrowers listed on the loan. All borrowers are subject to a financial assessment to ensure they can meet ongoing homeownership obligations, such as property taxes, homeowner’s insurance, and home maintenance.

If a family member meets these age, occupancy, and financial requirements, and is also an owner of the home, they can apply as a co-borrower from the outset. Both borrowers’ names will appear on all loan documents, and their ages are factored into the loan amount determination. This arrangement ensures both individuals are recognized as borrowers with rights and responsibilities under the reverse mortgage terms.

Adding a Family Member to an Existing Loan

Adding a family member to an existing reverse mortgage after it has been closed and funded is generally not possible. Reverse mortgages are structured based on the ages and circumstances of the original borrowers at the time of loan origination. The loan terms, including the amount that can be borrowed and the interest accrual, are specifically calculated using this initial data.

The legal framework for these loans does not provide for the addition of new borrowers post-origination. While administrative corrections for minor errors might be permissible, these are not avenues to introduce a new co-borrower. The loan is tied to the original borrowers, and any attempt to add a new person would fundamentally alter the risk profile and terms of the agreement.

The Role of a Non-Borrowing Spouse

A specific status exists for a “non-borrowing spouse” within the context of reverse mortgages, particularly HECMs. A non-borrowing spouse is defined as someone married to the borrower at loan closing, who occupies the home as their principal residence, but is not listed as a borrower on the reverse mortgage. This status is distinct from a co-borrower and comes with specific protections allowing them to remain in the home after the borrowing spouse passes away.

For a non-borrowing spouse to qualify for these protections, they must have been married to the borrower at loan origination and continuously resided in the property as their primary residence. Upon the death of the borrowing spouse, the non-borrowing spouse can defer the loan’s due and payable status. To maintain this deferral, they must continue to meet the loan’s requirements, including paying property taxes, homeowner’s insurance premiums, and maintaining the home in good condition.

The loan balance continues to accrue interest and fees during this deferral period, and the non-borrowing spouse does not receive any further loan disbursements. When the non-borrowing spouse eventually vacates the property or passes away, the loan then becomes due and payable. These protections ensure housing stability for the surviving spouse while upholding the reverse mortgage terms.

What Happens When the Borrower Passes Away

When the last surviving borrower on a reverse mortgage passes away, the loan becomes due and payable. This means the loan balance, which includes the original amount borrowed plus accrued interest and fees, must be repaid. Heirs or the estate are notified by the lender of the loan’s maturity and the options available to resolve the debt.

Family members have several options to address the reverse mortgage. They can repay the loan, often at the lesser of the outstanding loan balance or 95% of the home’s appraised value. Alternatively, heirs can sell the home to repay the loan, with any remaining equity after the loan is satisfied going to the estate. If the heirs do not wish to keep the home or cannot repay the loan, the lender may initiate foreclosure proceedings.

Heirs are given a specific timeframe, typically around six months, to decide and take action, with possible extensions if they are actively working to resolve the loan. If a family member who was not a protected non-borrowing spouse was living in the home, they do not have the right to remain in the property once the loan becomes due. Their continued occupancy would be subject to the heirs’ decision regarding the property or the lender’s foreclosure process.