Can You Get a Reverse Mortgage on a Rental Property?

We all know that senior homeowners can use reverse mortgages to boost their retirement funds. But what about older people who are living in a rental property? Can they still get a reverse mortgage?

Stick around to find out! I'll go over a few rental scenarios where you might be able to get a reverse mortgage, along with the residency rules and eligibility criteria.

Understanding Reverse Mortgages

A reverse mortgage is a loan for seniors that uses equity in the home. It allows senior homeowners aged 62 or older to convert part of their home equity into cash. 

It allows you to tap into the equity you've built in your home without having to sell it or make monthly mortgage payments. Instead of you paying the lender, the lender pays you, providing you with a steady stream of income each month or a lump sum payment, depending on your preference.

One of the best reverse mortgage benefits is that you don't have to repay the loan until you sell the home, move out permanently, or upon your passing. This means you can enjoy the benefits of the loan without worrying about making monthly payments.

The amount you can borrow through a reverse mortgage depends on a few key eligibility factors that we’ll look into in a bit.

2 Scenarios When It's Okay to Rent

While a reverse mortgage is primarily designed for your primary residence, there are scenarios where renting can come into play.

Scenario #1: Renting Out Part of Your Home

• If you're thinking about renting out a part of your home, like a room or a basement, it's essential to check with your lender first. 

• Each lender has their own rules about renting, so it's crucial to make sure you're following them. Renting to family members might seem harmless, but your lender could have different ideas.

• One important rule to keep in mind is that any rental should be for a long time. If you rent out part of your home on a short-term basis, like through Airbnb, your lender might see it as running a business. 

• This could lead them to cancel your reverse mortgage, which is something you definitely want to avoid.

Scenario #2: Owning a Multifamily Property

• If you own a property with multiple units, like a duplex or a fourplex, you can still get a reverse mortgage. 

• This means you can rent out some of the units to tenants. However, there's a catch - you have to live in one of the units yourself. This is called your primary residence.

• But here's the thing, if you ever decide to move out, lease, or sell your unit, you could be breaking the rules. 

• This means your loan could become due and payable, which is something you don't want to happen. So, make sure you understand the rules and stick to them to avoid any problems down the road.

Reverse Mortgage Residency Rules

Beyond the eligibility criteria for borrowers, there are also occupancy requirements that borrowers must meet. Here’s how it looks - 

• Rule #1: Your Main Home Matters

To get a reverse mortgage, the house you own must be where you mainly live. This means you can't be away from it for more than about 6 months straight, or 12 months if it's for medical reasons.

• Rule #2: One House, One Reverse Mortgage

You can't have a reverse mortgage on more than one property at a time because the one you choose must be your main residence.

• Rule #3: Move In Before You Get a Reverse Mortgage

You can't buy a new house and immediately get a reverse mortgage on it. You have to live there first before you can consider getting it approved.

It's not just these rules you need to follow. Each lender has their own set of rules too. So, before you think about renting out your place or getting a reverse mortgage, it's smart to talk to the lender first to know what they need from you.

 

Eligibility Criteria for Reverse Mortgages

Reverse mortgages have some rules and requirements you need to know. 

• First off, you need to be at least 62 years old to qualify. If you’re married and your spouse is younger, you can still get a reverse mortgage, but they won’t get any money from it upon your passing.

• Another thing to remember is that you have to keep up with paying your property taxes and homeowners insurance. If you don’t, you could lose your home.

• Before you can get a reverse mortgage, you have to meet with a HUD counselor to make sure you understand everything. They’ll also check your finances to see if you can afford the costs that come with the mortgage.

• Your home also has to meet some requirements. It has to be your primary residence, and you must own enough equity to qualify (50% minimum equity). That usually means having at least half of it paid off. If you live in a condo or a manufactured home, it needs to meet certain rules too.

The Bottom Line

So, to wrap it all up, reverse mortgages can be a real help for retirees who need some extra cash. But they’re only approved for owner-occupied homes, and you need to live there as your primary residence. 

You can only be a homeowner, for example, for a multifamily property where you live in one of the units and rent out others. You can’t get a reverse mortgage on the home where you live on a rental basis.

Before you jump into a reverse mortgage, make sure you understand all the details. Talking to a reverse mortgage expert can clear up any confusion and help you decide if it's right for you.