Can You Rent Your House If You Have a Reverse Mortgage?

A reverse mortgage allows homeowners, typically those aged 62 and older, to convert a portion of their home equity into cash. This financial tool enables them to access funds without making monthly mortgage payments, differing significantly from a traditional mortgage. The loan is secured by the home itself, and its primary purpose is to provide financial flexibility during retirement. Many individuals consider this option to supplement income, cover expenses, or manage financial needs. A common question arises regarding the ability to rent out a property while holding a reverse mortgage, a situation that involves specific conditions.

Understanding the Primary Residence Requirement

A fundamental condition for a reverse mortgage is that the home must serve as the borrower’s principal residence. This means the borrower must live in the property for at least 183 days annually. This requirement ensures the loan supports the homeowner’s ability to “age in place” rather than financing an investment property. If the property ceases to be the principal residence, the reverse mortgage loan can become due and payable.

Lenders and the Federal Housing Administration (FHA), which insures most reverse mortgages, monitor this occupancy requirement. Monitoring involves annual occupancy certifications that borrowers must submit, confirming their residency. Returned mail and occasional occupancy inspections can also signal a potential violation of the primary residence rule. Adhering to this requirement is important for maintaining the loan in good standing.

When Your Home Stops Being Your Primary Residence

A home ceases to be a primary residence under a reverse mortgage in several scenarios, leading to the loan becoming due and payable. Moving out permanently, such as to live with family or transition to assisted living, triggers this condition. The loan balance then becomes immediately repayable.

Renting out the entire property, even temporarily, also violates the primary residence stipulation. Extended absences from the home can also lead to the loan becoming due. For non-medical reasons, an absence exceeding six months is considered a violation.

Exceptions exist for medical reasons, allowing for absences of up to 12 consecutive months if the borrower is in a healthcare facility, such as a hospital, nursing home, or assisted living. For such medical absences, the borrower or their representative must provide evidence of an intent to return. If the loan becomes due and payable, repayment is achieved by selling the home, refinancing, or using other assets.

Limited Rental Possibilities While Maintaining Occupancy

While renting out the entire property with a reverse mortgage is not permitted, some rental activities are possible if the borrower continues to occupy the home as their primary residence. Renting out a spare room within the home is allowed. This arrangement permits the homeowner to generate income without violating the occupancy terms of the reverse mortgage.

If the property includes an Accessory Dwelling Unit (ADU) or is a multi-unit property (e.g., a duplex), renting out the separate unit(s) is permissible, provided the borrower resides in one of the units as their primary home. These differ from short-term rental arrangements, such as those through vacation rental platforms, which are not allowed. Such short-term rentals can be viewed as commercial use, changing the nature of the property from a personal residence.

Temporary absences, such as for an extended vacation or medical recovery, are permissible as long as the homeowner intends to return and the home is not rented out during that period. Borrowers should notify their reverse mortgage servicer of any planned absence exceeding two months to avoid potential issues. Communication with the servicer before engaging in any rental activity is recommended to ensure compliance with loan terms.

Financial and Legal Considerations Before Renting

For homeowners considering permissible rental activities, several financial and legal aspects require careful attention. Adjusting homeowner’s insurance to a landlord policy or adding specific riders is necessary to ensure adequate coverage for rental activity. Standard homeowner’s policies do not cover liabilities associated with tenants.

Renting out a portion of the property can affect property tax exemptions, such as homestead exemptions. These exemptions require the property to be solely used as the primary residence, and renting a part of it can alter this status, increasing the taxable value or reducing the exemption amount. Checking with any Homeowners Associations (HOAs) or local zoning laws is important, as they may have restrictions or prohibitions on rental activities.

Consulting with a financial advisor, tax professional, or attorney is important to understand the full implications of generating rental income. They can provide guidance on tax obligations, potential changes to property taxes, and any legal responsibilities as a landlord. The homeowner remains responsible for property maintenance and repairs, even with tenants. These ongoing responsibilities must be factored into the decision to rent.