Reverse mortgages are unique financial tools that allow homeowners who are 62 or older to convert some of their home equity into cash while still living in the home. However, as more people are considering reverse mortgages, one question often arises: “Can I add a family member to my reverse mortgage?” Understanding how reverse mortgages work and who is eligible to participate is essential in making the best financial decisions for you and your loved ones. This blog aims to shed light on this topic, providing you with all the information you need to navigate this complex issue.
Understanding Reverse Mortgages
A reverse mortgage is a type of loan that allows homeowners to access the equity they’ve built in their home. Instead of making payments to the lender, the lender makes payments to the homeowner, either in a lump sum, monthly payments, or as a line of credit. The homeowner is not required to repay the loan until the home is sold or the borrower passes away or moves out of the home.
Who Can Be On a Reverse Mortgage?
Traditionally, the homeowner and their spouse are the ones who are part of the reverse mortgage. However, many people wonder if they can add other family members, such as adult children, to the reverse mortgage. The answer is a bit complicated. The Department of Housing and Urban Development (HUD) guidelines, which oversee the Home Equity Conversion Mortgage (HECM) program, prohibit adding other family members to a reverse mortgage unless they are the homeowner or the homeowner’s spouse.
The Role of Non-Borrowing Spouses and Eligible Non-Borrowing Individuals
While you can’t add other family members to your reverse mortgage, there are protections in place for certain individuals who might be living in the home. These individuals are called “non-borrowing spouses” or “eligible non-borrowing individuals” (ENBI).
A non-borrowing spouse is a spouse who might be living in the home but is not a borrower on the reverse mortgage. HUD has rules that let non-borrowing spouses stay in the home after the borrower’s death, provided they meet certain conditions. These include continuing to meet the loan obligations and maintaining the home.
Similarly, an ENBI can be a family member who is not a borrower but lives in the home. ENBIs also have some protections. For example, as long as they meet certain conditions, they can stay in the home after the borrower passes away.
The Importance of Age in Reverse Mortgages
The age of people on the reverse mortgage is critical as it determines the loan amount. Older borrowers can receive more money due to their shorter life expectancy, leading to quicker loan repayment. However, adding a younger family member could significantly cut your reverse mortgage amount, as it’s expected to last longer.
Navigating Reverse Mortgage Decisions with Family Members
While adding a family member to your reverse mortgage may not be possible, it’s still important to have a conversation with your family about your decision. Your reverse mortgage will impact them, especially if they live in your home or expect to inherit it.
When you take out a reverse mortgage, your home is used as collateral. If you pass away or move out of your home, the loan becomes due. If your family members can’t pay off the reverse mortgage, they may need to sell the home to cover the loan balance.
Additionally, while reverse mortgages can provide you with extra income, they also decrease your home equity, leaving less for your heirs. If you want to leave an inheritance, consider other options or strategies. This will help ensure you take care of your loved ones after your passing.
Current rules don’t allow adding a family member to your reverse mortgage. However, protections exist for certain non-borrowing individuals. Reverse mortgages can benefit some homeowners, but they come with risks, especially for family members. Like any financial decision, thorough research and understanding all implications are essential. Consulting a financial advisor can also help to ensure the best decision for your situation.