Mortgage Q & A: Reverse Mortgage and Owner Occupancy

Q: My mother has a government-insured reverse mortgage and is thinking about moving to another state. I recall hearing that borrowers with reverse mortgages must occupy their homes. What happens if mom decides to move out of her home? She is thinking about renting it out, but doesn't want to get into trouble with her mortgage company or the government.

A: While homeowners with reverse mortgages may travel for extended periods, they are required to maintain the mortgaged home as their primary residence. The National Reverse Mortgage Lenders Association (NRMLA) states that reverse mortgage borrowers must occupy their homes for a minimum of 183 days a year.

In cases where there are multiple borrowers of a reverse mortgage, at least one of them must maintain permanent residency in the mortgaged home.

The U.S. Department of Housing and Urban Development (HUD) is the federal agency that oversees the FHA Home Equity Conversion Mortgage (HECM) program; According to the training manual for HUD-approved reverse mortgage counselors, borrowers must occupy their homes for the "majority of the year," and may not rent out their homes and establish their primary residence elsewhere.

Reverse Mortgage Must Be Repaid When Borrower Vacates

If your mother decides to move, she would have to repay the balance of her reverse mortgage -- either by selling the property or coming up with the cash.

Before your mom lists her home for sale, she may wish to get an estimate of the expected proceeds from a real estate agent, and compare that to her reverse mortgage balance. Subtracting the estimated payoff amount from the expected proceeds from the sale provides an estimate of the money available to her after the sale.

If the reverse mortgage balance exceeds the expected proceeds, she won't be responsible for the difference. Reverse mortgages are called "no recourse loans" because even if you owe more than the home is worth, you aren't obligated to repay the difference (this is called a "deficiency").

Find out how much you qualify for.